Think of it as a charitable savings account to support the causes and charities you care about most. If you wish, the funds can be invested for tax-free growth.
More specifically, a DAF is an account created by a donor with a public charity. The terms of the agreement give the donor, or sometimes others, the right to recommend charitable grants from the DAF. Most community foundations offer DAFs as do many charitable affiliates of investment firms.
How does it work?
You contribute cash, stock, or other assets to your account at the DAF sponsor. Your contribution is irrevocable, and you generally receive an immediate income tax charitable deduction for your contribution. The DAF sponsor invests and manages the DAF and allows you, as the advisor, to recommend grants to qualified charities in amounts and at times you choose. As a matter of law, the DAF sponsor is responsible for all distributions from the fund and is not required to follow your recommendations.
What are the advantages of a DAF?
An obvious advantage is the ability to separate the timing of your tax-deductible contribution from your decisions about which specific charities you wish to support. There are a number of additional benefits discussed below.
Unlock the benefits of non-cash assets
Since many Americans hold the majority of their wealth in assets other than cash, donating appreciated non-cash assets is often more advantageous. Donors are eligible for a charitable income tax deduction based on the fair market value of the asset. An added bonus is never having to pay income or capital gains tax on the appreciation. In addition to cash and publicly traded stock, most DAFs will accept mutual funds, restricted stock, real estate, cryptocurrency and private equity or hedge fund interests.
Simplify record keeping
Many donors find the simplicity of record keeping to be one of the biggest advantages of a DAF because you do not have to keep track of every gift acknowledgement from every charity. With a DAF you only need the receipts from your DAF contributions.
Perpetuate your legacy
You can continue to support the causes you care about by naming your children or other family members as successor advisors. Alternatively, you can simply leave instructions, directing your DAF to continue to make grants to the charities you care about.
Can I support Brown University with my DAF?
Absolutely! Just recommend a grant from your DAF to Brown. Although you won’t get a tax receipt from Brown – remember, you already received a deduction when you made your contribution to your DAF – we will recognize you for your contribution and you can support a program or initiative on College Hill you are passionate about. In addition, check with your plan sponsor about naming Brown University to receive a percentage or the remaining balance in your DAF at the end of your lifetime.