About Donor-Advised Funds
A donor-advised fund (DAF) is a charitable giving vehicle administered by a public charity or a financial institution. It allows donors to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund over time. Essentially, donors contribute to the fund and advise the fund on how to distribute the money to specific charities or causes.
Here’s how it typically works:
- Contribution: Donors contribute assets, such as cash, stocks, or other assets, to the donor-advised fund.
- Tax Deduction: Donors receive an immediate tax deduction for the full amount of their contribution. This deduction applies in the year the contribution is made, even if the distribution to charities happens later.
- Recommend Grants: Donors can recommend grants from the fund to qualified charitable organizations such as the Pat Tillman Foundation. These recommendations are typically non-binding, meaning the fund sponsoring organization has the ultimate authority to approve or reject them, though they usually follow the donor’s recommendations.
- Investment: The assets in the donor-advised fund are invested for potential growth. Donors can often choose from a variety of investment options.
- Grant Distribution: The fund makes distributions to the recommended charities according to the donor’s instructions. This can be done as a one-time gift or as recurring donations.
DAFs offer several benefits to donors:
- Simplicity: Donors can make one large contribution to the DAF and then distribute smaller grants to multiple charities over time.
- Tax Efficiency: Donors receive an immediate tax deduction for their contribution, and the assets in the fund can grow tax-free.
- Privacy: Donors can choose to remain anonymous if they prefer, as the grants are made in the name of the DAF rather than the individual donor.
- Flexibility: Donors can take their time to decide which charities to support and how much to give to each.
Overall, donor-advised funds are a popular and effective way for individuals and families to manage their charitable giving while maximizing tax benefits and flexibility.