According to the Giving Institute’s 2023 Annual Report on Philanthropy, charitable giving in the U.S. decreased more than 10 percent in 2022 from a record high the prior year. However, one area of giving that appears to be growing is the use of donor-advised funds (DAFs), which saw contributions and grants to philanthropic organizations increase 9 percent from 2021 to 2022.
What’s fueling the growth of Donor Advised Funds?
DAFs are investment accounts operated and administered by nonprofit organizations (or “sponsors”) that provide individuals with a simple, flexible and tax-advantaged method for managing and maximizing charitable giving.
With these vehicles, donors make irrevocable contributions of cash, stock, bonds, real estate or other alternative assets 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 (CRTs) or charitable lead trusts (CLTs).
About the Author: Eric 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 PWA Securities, LLC. He can be reached at the firm’s Fort Lauderdale, Fla., office at (954) 712-8888 or info@provwealth.com.
Provenance Wealth Advisors (PWA), 200 E. Las Olas Blvd., 19th Floor, Ft. Lauderdale, FL 33301 (954) 712-8888.
Eric Zeitlin is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
The investments mentioned may not be suitable for all investors. Donors are urged to consult their attorneys, accountants or tax advisors regarding the deductibility of donor-advised fund contributions for federal and state tax purposes.
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Updated on June 26, 2024