What is a Giving Center donor-advised fund? A donor advised fund is an easy, tax-efficient way to give to charity. Donor-advised funds, or DAF, allows donors to make a charitable donation, receive a tax deduction immediately, and then recommend grants from the fund over time. As a donor, you can contribute to the DAF as often as you’d like, and then recommend grants to charities like Giving Center. Donors contribute assets, those assets grow, and Giving Center benefits. To begin a donor-advised fund, you, the donor, makes a contribution of personal assets, such as cash, stock, real estate, retirement account assets, cryptocurrency, and more. Once your charitable contribution is made, you immediately receive the maximum tax deduction the IRS allows.
Most people think of charitable donations as happening in one of two ways. In one scenario, people decide how much they want to donate, then select a charity like Giving Center, that will be the recipient of the funds. In the other scenario—one only available to the wealthy—a donor can take their money and set up their own foundation, transfer money over to it, have it grow, and then give away money over time, perhaps in perpetuity.
But did you know that there is also a third way that combines the first two approaches? It’s called a donor-advised fund, and it lets even small-scale givers put money into an account, let it mature, and then disburse it gradually. Giving Center offers the option of creating a Donor Advised Fund.
Donor-advised funds could best be described as a waiting room for charitable donations. People who wish to donate money with Giving Center, deposit the money in an account with a donor-advised fund, where they can elect a way to invest it, or, if they place enough money in the account, you can choose instead to have an investment advisor manage their portfolio. In return, they receive an immediate deduction on their taxes for the amount they have “donated” by depositing into the fund, and when they are ready to make their donation (which could be years in the future), they alert the fund, and submit the grant recommendation. Once the money’s in the account, it can’t be returned to the donor—it then technically belongs to the donor-advised fund.
So why use donor-advised funds instead of giving to a charity directly? For one thing, they allow ordinary people to grow their money over time, and give it to charity as a philanthropist would, like a DIY Bill Gates. Another reason: Perhaps the account holder just wants the tax deduction, and doesn’t feel like selecting a charity at the moment. These funds allow people who earn more money in one year than another to time their deduction, depositing money in the donor-advised fund in years when their earnings permit them to receive a greater tax benefit, and then donating the money to charities over a period of years. Those who are in favor of donor-advised funds suggest this incentivizes people to donate more than they otherwise would; detractors say it’s just another tax advantage for the wealthy.
Another appeal of these funds is that they allow aspiring philanthropists to get started with relatively small amounts of money. Giving Center, for example, requires an initial donation of only $5,000; after that, future deposits (if there are any) can be as low as $100. Foundations are expensive to set up and administer, and experts generally say that unless donors are starting with at least $250,000, most would be better off putting money into a donor-advised fund. Since people can deposit more into those funds over time, they offer people who aren’t extremely wealthy a way to build up money in a tax-advantaged way, allowing them to give larger sums when they do finally sign the money over to charities like Giving Center.