A donor-advised fund (DAF) offers an easy way for a donor to make significant charitable gifts over a long period of time. A DAF is similar to a private foundation but requires less money, time, legal assistance and administration to establish and maintain. Because DAFs are public charities, they also enjoy greater tax advantages than private foundations.
During life, a donor (or a donor's designee) can make ongoing, nonbinding recommendations to the DAF as to how, when and where grants from the fund should be made. Additionally, the donor can offer advice to the DAF regarding how contributions should be invested. The donor may suggest that, upon death, grants be made to charities named in his or her will or another legal document such as a revocable living trust.However, the fund is not obligated to follow any of the donor's suggestions, hence the name donor-advised fund. As a practical matter, though, the DAF will generally follow a donor's wishes. Grants to recipients are typically identified as being made from a specific donor's account, but they can also be made anonymously at the donor's request.
Tax Advantages of a Donor-Advised FundA donor can generally take an immediate income tax deduction for charitable contributions of money or non-publicly traded assets to, or for the use of, a DAF if the donor itemizes deductions on his or her federal income tax return. The amount of the deduction depends on several factors, including:
- The amount of the contribution
- The type of property donated
- The donor's adjusted gross income (AGI)
Moreover, there are no federal gift tax consequences because of the charitable gift tax deduction, and federal estate tax liability is minimized with every contribution since donated funds are removed from the donor's taxable estate. In addition, DAFs are not subject to the excise taxes levied against private foundations.
Five Questions to Ask
1. What types of grants recommended by donors will the DAF sponsoring organization approve?
You will want to make sure you will be able to support your favorite charities through the fund. Generally, DAFs are able to support most 501C3 organizations, but sometimes there are restrictions (i.e. religious, international, etc.).
2. What types of assets can the DAF accept besides personal checks?
Many DAFs accept publicly traded stock, privately-held C- and S-company stock, real estate, life insurance, art and collections. Complex assets have been sources of many of the largest donations to DAFs in recent years, and the trend is accelerating.
3. Can the assets in a DAF account be transferred to another DAF sponsor?
It is important to select a DAF that allows you to transfer the account elsewhere if you ever become dissatisfied with any aspect of the sponsoring organization’s services.
4. Are there restrictions on the amount that can be granted from a DAF?
Is the DAF unrestricted or is it a donor-advised endowment fund in which often only 5 percent of the principal can be distributed annually? Most people who want to give during their lifetimes do not select endowed DAFs.
5. What are the specific account details for this DAF?
Questions you should ask before donating include:
- What are the investment options?
- What is the minimum required to open one?
- What is the minimum grant recommendation amount?
- How can DAF holders recommend grants: Online, call, mail?
- How long does it take to approve the recommended grants?
- Can repeated grants to the same non-profits be scheduled in advance?
- What are the costs?
This commentary is limited to the dissemination of general information pertaining to Mariner Wealth Advisor’s investment advisory services and general economic market conditions. The information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such. The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. There is no guarantee that any claims made will come to pass. The opinions and forecasts are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information that this opinion and forecast is based upon.
Mariner Wealth Advisors (“MWA”) is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment adviser does not imply any level of skill or training. MWA and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.