We work with many families who wish to make charitable gifts both during their lifetimes and after death. One of the options available to them is a Donor Advised Fund.
What is it?
A donor advised fund (DAF) is an account created by you where you can deposit as few, or as many, assets as you wish for the benefit of charity. The fund can consist of cash, stocks, life insurance, business interests, cryptocurrency or retirement funds. Once the funds are put into the fund however, the donation is irrevocable and the assets legally are no longer yours.
Why Make A Donor Advised Fund?
A donor advised fund allows you to get the most for your money. Instead of a one-time gift to a charity, put the funds in a DAF instead. The money in the fund is invested and grows tax free. The funds in the account can only be distributed to charity, but because the account is invested and grows, more money goes to the charity. Additionally, you get an immediate income tax deduction for your donation. Cash assets can give a deduction up to 60% of your adjusted gross income and other assts allow you to deduct up to 30% of your adjusted gross income. If the asset placed in the fund would carry heavy capital gains, the capital gains are no longer owed (since the asset is going to charity), and you can reduce your estate taxes by putting the funds into a DAF.
Donor Advised Fund v. Charitable Trust
A donor advised fund does not generate income, unlike a charitable trust. A donor advised fund allows income tax deduction that is equal to the value of the gift, while the charitable remainder trust determines the value of the remainder interest. A donor advised fund allows flexibility in management and distribution, like determining who gets a distribution, when, and in what amounts. A charitable remainder trust requires you to identify the charity at the time the trust is created, and it cannot be changed.
In the end, each plan gives money to charities. For those who would rather have someone else managing their assets and dealing with the day-to-day, as well as those who need to move large amounts of money out of their estate for tax purposes, a charitable remainder trust is likely the better vehicle. For those who give frequently (annually or more), but in smaller amounts (thousands rather than millions) and who want continued input to what charities receive what amounts, a donor advised fund will serve you well.
At Grissom Law, we can help determine what vessel is right for your charitable giving. Our firm looks at your current and future finances, personality, and estate planning needs to create the best plan for your family.
Disclaimer
This Blog/Web Site is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide legal advice. By using this blog site you understand that there is no attorney-client relationship between you and Grissom Law, LLC.