What is a donor advised fund? And why do you need one?
Question, what has become the most active charitable giving vehicle in philanthropy today?
The answer: The donor advised fund or DAF.
Donor advised funds or DAFs have been around for almost a century, but most everyday givers are unaware of their existence. In this blog, we will break down the definition of a donor advised fund and why you’ll benefit from setting up one for your philanthropic endeavors.
What is a donor advised fund?
A DAF is a tax-advantaged giving account. They can be funded with cash, stocks, cryptocurrencies, mutual funds, or publicly traded securities, and you receive a tax deduction for doing so.
In 1931, the first DAF was established in Manhattan by New York Community Trust, a community foundation. The foundation was maintained by John D. Rockefeller Jr. to allow individuals to choose which charities to support with their donations.
In 2020, grants made to charities through donor-advised funds amounted to $34.67 billion. This is an increase of 27% as compared to 2019.
Once thought of as a vehicle only for the wealthy or those in the financial service industry, DAFs can be accessed by any philanthropist, regardless of the amount donated, even in the form of micro-philanthropy.
How to set up a donor advised fund:
Donor advised funds are easy to set up and only require five steps.
- Select a sponsor
The donor selects a sponsoring organization in which to set up their DAF.
- Name the account
The donor names the account. Successors can also be named to the account in the event that the donor passes away and can determine where the funds accumulated in the DAF will go.
- Make a contribution to the DAF
The donor makes a contribution to the fund in the form of cash, stocks, mutual funds, publicly traded securities, or cryptocurrency. The donor can also set up a recurring donation to make sure their account stays funded.
- Grant the funds to a charity
The donor can set up a grant to disperse the funds to one charity or grant the funds to multiple charities.
- Receive a tax deduction
The donor receives the maximum tax deduction. In most cases, the contributions made in a donor advised fund are eligible for an immediate tax deduction, even if the money might not be dispersed to a charity until much later.
What are the benefits of a donor advised fund?
Outside of the benefit of a tax deduction, there are additional advantages for creating a donor-advised fund to assist you in your philanthropic goals. These include:
• Create a legacy of giving
A donor advised fund can help a philanthropist set up a legacy of giving that can extend beyond them. A donor can set up a recurring gift in their name to the charity of their choice should they pass away. They can also set up an heir for the account and that person can begin using the DAF to give to charities they want to support.
Some givers like to give secretly. Others want to give but do not want to be solicited for future donations or other charities. By creating a DAF a giver can shield their identity and make grants anonymously so that their donations will not become public knowledge.
Now that you have the 411 on donor advised funds, it is time for you to take your philanthropy to the next level by creating a donor advised fund of your own. Through Philanthropi you can set up a donor-advised fund. Our Impact Accounts are DAFs that are easy to set up and maintain. And along with the monetary funds you disperse to charities, our Impact Accounts also serve as private donation trackers, helping you to track your other methods of giving back, be it volunteering and pro bono work, or community engagement and community empowerment. Simplify and amplify your philanthropic voice, and set up your Impact Account today!
Founded in Philadelphia in 2019, Philanthropi is a revolutionary charitable giving by democratizing philanthropy through its giving platform, allowing everyday donors to seamlessly support their favorite nonprofit organizations.
1 Per the National Philanthropic Trust