Donor-Advised Funds (DAF’s) are philanthropic vehicles that allow individuals, families, or organizations to make charitable contributions, receive immediate tax benefits, and then recommend grants from the fund to specific charities or nonprofit organizations over time. They are a popular and flexible way for people to manage their charitable giving and support causes they care about. The Fayette County Community Foundation supports DAFs that are in alignment with their mission of improved quality of place, community, and health for all residents of Fayette County.
Here’s how they work:
Contribution
To establish your donor-advised fund, you make an irrevocable contribution of personal assets—which could include cash, stock, real estate and more. Your contribution is recorded as a donation to FCCF, and the balance will be reflected in your donor-advised fund account.
Immediate Tax Benefit
When you contribute to your donor-advised fund, you may be eligible to claim an itemized tax deduction for federal and/or state income tax purposes. Because FCCF and other donor-advised fund sponsors are public charities, your donation is considered a tax-deductible charitable contribution.
The amount of the deduction will depend on several factors, including the type of asset donated and how long you have owned it. This arrangement allows you to plan your gift so that you can take the tax deduction when it makes sense for you and to recommend grants to your favorite charitable organizations at any point in the future. Please consult your tax advisor for specific IRS rules and how they apply to your personal tax situation.
Recommendation of Grants
While establishing your donor-advised fund account, you structure it in a way that best meets your charitable goals. You can name your donor-advised fund (DAF) anything you would like; appoint friends and family members to help you manage the responsibilities of a DAF; and design a Legacy Plan to determine what will be done with your DAF assets beyond your lifetime, which may include appointing successors or charitable beneficiaries.
Investment and Growth
You can recommend an investment strategy for the assets in your donor-advised fund account by selecting an allocation from among the pre-approved investment offerings. The assets in your DAF are invested following your recommendations. Any investment growth is tax-free, giving you the potential to create even more philanthropic capital for grantmaking.
Minimum Requirements
A minimum of $10,000 is required to create a Donor Advised Fund.
Management
It’s important to note that while donors have advisory privileges over the recommended grants, the sponsoring organization legally owns and manages the assets in the DAF. However, they typically adhere to the donor’s wishes when it comes to grant recommendations.
Donor-Advised Funds have become increasingly popular for their flexibility, tax benefits, and the ability to streamline charitable giving. They are used by individuals, families, foundations, and even corporations to support a wide range of charitable causes.