Giving Back with Donor-Advised Funds

Many of our clients want to give back to their community. But they haven’t yet decided how. If this is your situation, a Donor Advised Fund (DAF) can be a great approach.

The beauty of DAFs is that they allow you to pool assets for charitable giving, and then to decide over time how to disperse those funds. Flexible and easy to set up, DAFs have breathed new life into charitable giving, with DAF contributions more than doubling since 2009.

The Seattle Foundation, with which we work closely, and other types of community-oriented non-profits can handle all the paperwork and asset transfers. Or you can opt to go through the charitable divisions of for-profit financial firms.

What you can give. If you have something of value, chances are DAFs can accept it as a donation: cash, real estate, marketable securities (stocks, bonds and mutual funds), collectibles and other personal property, and even closely held business interests.

The tax benefits. You can claim a tax deduction for the total amount you transfer to the DAF in the year you do so. Cash donations are deductible up to 50% of your adjusted gross income (AGI). Gifts of appreciated securities and other assets are usually deductible at the current, full market value – up to 30% of your AGI.

Note that if you donate assets that are valued at more than 30% of your AGI in any one year, you can carry the excess charitable deduction forward for up to five years.

No time limit on disbursements. The money in the DAF is invested by The Seattle Foundation or other DAF administrator and grows tax-free until you decide to distribute to a charity. The annual admin fees vary but are usually 1.5% or less.

There is currently no time limit for when DAF funds must be dispersed. It’s entirely up to you when to dispense the money and how much to give to each charity. And it’s possible for the DAF to outlive you, the grantor, and to be guided by the next generation. There is, however, a movement afoot to require distribution of funds within a certain time (seven years is one proposal) or pay an excise tax on those funds. So there may eventually be a timeframe for distributions, although it’s still likely to be years out.

Privacy. DAFs do not require the disclosure of disbursements, either to the public or even to the charity receiving the funds. The DAF administrator can issue a check to the charity you choose without naming you as the grantor.

Lots of charitable giving options. You can give to virtually any charity, as long as it is:

— An IRS-approved 501(c)3 public charity. But you can also make grants to certain public institutions, such as Seattle Public Schools, for a designated purpose.

You can be as specific as you want. You can name specific non-profits you want to support. Or you can allow the administrator to choose for you. Through The Seattle Foundation, for example, you can opt to give to the Community Fund, which makes grants to a wide variety of organizations in King County. Or you can say “I’m interested in education initiatives in Africa” – and The Seattle Foundation will channel your grants to qualified organizations.

What You Can’t Do Through a DAF
Most of the no-nos apply to things you do on your own behalf, or for your own benefit, and then ask the DAF to fund, including:

— Using DAF funds to pay for a pre-existing commitment or a pledge. This includes bidding on charitable auction items and paying for them later through the DAF.

— “Bifurcated” gifts. You as the donor cannot receive any benefit from making grants through the DAF – even relatively small things, like the cost of a dinner or of a membership, which you have to pay for separately, outside the DAF. While funds from your DAF can sponsor a table at a fundraiser, you cannot sit at that table or choose who sits there.

Scott Hayman, Director of Business Development & Gift Planning at The Seattle Foundation, sums it all up: “DAFs enable donors to qualify for an immediate tax deduction and to involve family members in philanthropy, while providing flexibility in determining the timing and amount of the grants, as well as the non-profits benefiting.”