According to the Giving Institute’s annual report on philanthropy, charitable giving in the U.S. remained strong from 2019 to 2021, growing more than 9 percent over two years. At the same time, Americans increasingly turned to donor-advised funds (DAFs) as their preferred method for supporting the organizations and charities that are nearest and dearest to their hearts. In fact, charitable grants from DAFs reached $45.74 billion in 2021, a 28.2 percent increase from 2020.
What’s fueling the growth of Donor Advised Funds?
DAFs are investment accounts operated and administered by nonprofit organizations (referred to as sponsors) that provide individuals with a simple, flexible and tax-advantaged method for managing and maximizing their charitable giving.
With these vehicles, donors make irrevocable contributions of cash, stock, bonds, real estate or other alternative assets to a DAF of their choosing and receive an immediate income-tax deduction of 30 percent or 60 percent of their adjusted gross income, depending on the type of asset contributed. The minimum amount needed to set up the fund ranges widely from one fund to the next. Those contributions are considered charitable gifts that also allow donors to reduce or eliminate capital gains tax they otherwise would have incurred if they sold their long-held and highly appreciated assets and donated the proceeds to a charitable organization.
DAF sponsors invest and manage donors’ contributions, which grow tax-free outside of donors’ taxable estates, and make grants to donors’ favorite organizations and causes on the schedules donors set. In this sense, donors maintain the ability to direct how sponsors invest their assets, where they are distributed and when. When donors pass away, they may direct sponsoring organizations to distribute any remaining assets in full to the charities of their choice, or they may decide to keep the funds in place to create a legacy of giving for future generations. For the latter option, donors may divide their funds between their beneficiaries, allowing family members to support the charities that match their unique passions and values.
While donor-advised funds help to foster a family legacy of philanthropy among future generations, you should meet with your financial advisors to consider whether other vehicles may be better options, such as a private foundation, charitable remainder trusts or charitable lead trusts.
About the Author: Eric P. Zeitlin is managing director of Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with Raymond James Financial Services. For more information, call (954) 712-8888 or email info@provwealth.com.
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Eric P. Zeitlin is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.
Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. You should discuss any legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
Investments mentioned may not be suitable for all investors, RJFS does not provide tax advice. Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relatable to the deductibility of various types of contributions to a donor-advised fund for federal and state tax purposes. To learn more about the potential risks and benefits of donor advised funds, please contact us.
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Posted on August 1, 2023