As donor advised funds continue to skyrocket in popularity, we have heard more people asking what a donor advised fund is and how it works. The immediate follow-up question is usually,” What are the benefits of a donor advised fund for my family and the causes we support?”
A donor establishes a donor advised fund (DAF) by making a donation eligible for tax-deduction to a qualified 501(c)(3) DAF sponsor like The Signatry. The sponsor has legal control over the fund, and the donor has advisory privileges to recommend how those dollars are granted out to other nonprofit organizations over time.
As for the benefits, let’s unpack just a few of the primary benefits of using a donor advised fund and explore how this tool could amplify your generosity journey.
A donor advised fund centralizes and streamlines your giving.
Donor advised funds may sound like just another one of the many ways to “give back,” like giving to your church, a food pantry, or any other nonprofit. If you have individually given to nonprofits in the past, you may have found it difficult to track down all the receipts for these charitable contributions come tax season. A donor advised fund can actually simplify your giving by providing a central space to streamline your donations to multiple nonprofits.
A donor advised fund opens the door to creative giving strategies.
One key benefit of a donor advised fund is the flexibility it provides for maximizing your charitable tax deductions, donating publicly traded stocks (or other assets) to charity, and more.
- Charitable bunching: You could contribute more than one year’s worth of your typical charitable donations into a donor advised fund in a single year. This could allow you to surpass the standard deduction threshold and itemize your tax deductions—then take the standard deduction the following year. Learn more about charitable bunching.
- Give publicly traded securities: Donating stocks to charity can be a tax-efficient giving strategy that may benefit you and the charity. However, if the charity is not set up to accept noncash gifts, you could donate the stocks to a donor advised fund before they are liquidated. Learn how this strategy could reduce your tax burden and maximize what you are able to give to the causes you love.
- Consider this strategy for other noncash gifts, too.
A donor advised fund provides the opportunity to invest charitable funds for greater impact.
In the same way you make wise investments for your future, you can recommend a donor advised fund to wisely invest your contributions to grow over time. Funds inside a donor advised fund with The Signatry may be invested in Biblically Responsible Investment pools. You can rest assured that these funds are growing in a way that aligns with your values, even before they are sent out to the charities you love.
A donor advised fund serves as a convening point for family giving.
The benefits of a donor advised fund reach much deeper than financial efficiency. You can set up your donor advised fund so that your family members may also see—and even participate in—your contributions and grant recommendations. This central portal can become the foundation for family conversations about generosity, giving strategies, and the causes each person wants to support.
You can also form a giving circle with friends by contributing to the same donor advised fund together.
For more ideas about how to start these conversations with friends and family, read our blog post “Use a Donor Advised Fund to Engage your Family.”
A donor advised fund can house funds for surprise needs or random acts of kindness.
A donor advised fund with The Signatry has no minimum contribution requirement, and a low minimum grant requirement of only $100. This means that your donor advised fund can be a place to contribute a little extra income one month or answer an unexpected need like natural disaster relief or a short-term fundraiser. We saw many donors at The Signatry use the extras stored in their funds to increase their generosity at the beginning of the COVID-19 pandemic. You can also recommend small grants as random acts of kindness to your favorite nonprofits.
These five areas are just a few of the ways a donor advised fund can bring another layer of intentionality and clarity to your generosity. If you want to explore more of how a donor advised fund can align with your generosity vision, reach out to our team.
This article was originally published on October 16, 2020.