Why Use Donor-Advised Funds in Financial Planning?
Understanding a client's charitable goals can deepen an advisor’s relationship with a client and allow an advisor to integrate charitable giving into a client’s overall financial plan.
Knowing the benefits of a DAF and when to use charitable vehicles can strengthen your philanthropic advice.
DAF Benefits:
Clients can benefit from a DAF from both a tax and charitable giving perspective. A DAF is a great option for the following client situations:
Liquidity event (business sale, real estate transaction, appreciated stock)
Unexpected income (bonus, inheritance, etc.)
Currently making donations to multiple charities
Passionate about solving social problems
Client’s interest in anonymous giving
Generational giving (clients focused on making impact and leveraging innovative models, like impact investing)
Flexibility in timing grants to charities
Donor-Advised Fund vs Private Foundation:
DAFs are often compared to private foundations. In fact, many charitably-inclined clients frequently debate which of the two they should set up.
To aid in their decision-making process, here is a comparison of the two:
Donor-Advised Fund | Private Foundation | |
Timing | Immediate | Several weeks or months |
Fees & Set Up | No startup costs and low administration fees | High setup/legal costs and administration fees |
Causes To Support |
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Tax Deduction for Donations of Cash | 60% of adjusted gross income | 30% of adjusted gross income |
Tax Deduction for Donation of Stocks | 30% of adjusted gross income |
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Valuation of Gifts | Fair Market Value | Fair market value for public stocks, cost basis for all other gifts, including private business interests and real estate |
Required Distributions | No required distributions | 5% of net asset value annually |
Anonymity | Anonymous donations allowed | All donations are made public |
Succession Plan | Can easily name individuals as successor for the DAF | Successors and officers confirmed only by vote of the board |