Regardless of what type of automobile you drive—economy or luxury—it will get you where you need to go. The decision of which vehicle you buy depends upon your needs and what advantages a specific model may offer you and your family.
When considering charitable giving vehicles, there are many options to research. One of the most popular giving vehicles today is a donor-advised fund (DAF). A DAF is often referred to as a personal charitable savings account. A donor creates an account with a sponsoring organization, which can be a nonprofit or an investment company. The donor then makes a contribution of cash, stock, or other assets like real estate and artwork, and can take an immediate tax deduction for the gift. An adviser manages and invests the assets and works with the donor to identify charitable causes they wish to support.
The first DAF was established in 1930. In 2016, DAFs were dubbed philanthropy’s fastest-growing vehicle. They gained even more popularity in 2017 when the Tax Cuts and Jobs Act changed the standard IRS deduction for individuals, creating an immediate benefit for donors who contributed to DAFs. According to the National Philanthropic Trust’s 2019 DAF Report, the total number of DAF accounts more than doubled from 2017 to 2018.
So why the surge in growth? As DAFs continue to trend upward, more people are becoming aware of their attractive benefits. Explore our top five DAF advantages below:
1. Tax Benefits
Contributing assets to a DAF account provides an immediate tax deduction. If you suddenly acquired a large amount of assets, perhaps from an inheritance or selling a business, you would be bumped to a higher tax bracket. If you knew you wanted to give to charity but needed more time to investigate your options, a DAF would be an ideal solution. Upon creating a DAF with the amount of assets you desired to eventually contribute to charity, that amount would immediately be considered a charitable deduction, maintaining your lower tax position.
2. Flexibility and Convenience
DAFs are often compared to personal charitable savings accounts because the money is held in the account and grows until you are ready to make a charitable gift. While your adviser is in control of investing and spending the money on your behalf, he or she will typically follow your wishes. Under this advisement, you support what you want to support when you want to support it. It’s a simple transaction.
3. Adviser Expertise
Not everyone can be an investment guru. Luckily for you, most DAFs are equipped with them. As part of the agreement, an adviser will not only handle the investment component, but he or she will also work with you to explore charities that best fit your interests and will also manage the mundane administrative tasks for you.
4. Economically Feasible
One of the main reasons DAFs have gained such widespread popularity is the fact that they are feasible options for middle-income Americans who wish to support charitable causes. Most sponsoring organizations only require anywhere from $5,000 to $10,000 to create a DAF account. Additionally, the administrative fees are typically low for the value of the adviser services.
5. Intergenerational Philanthropy
There is no greater way to lead by example than by giving back to others, expecting nothing in return. This giving platform presents a tool to show children and grandchildren the power of charitable giving. You, alongside your family, can enjoy collaborating to identify causes you want to support. Also, many sponsoring organizations allow accounts to be passed down after the account holder’s life. This means an initial account has the potential to grow exponentially over the course of several generations, increasing its overall impact.
For those of you who are already DAF account owners, the Texas A&M Foundation asks you to consider making a charitable donation to support the Texas A&M University Disaster Relief Fund. Many Aggie students and employees are currently experiencing financial hardship in the wake of COVID-19. Your donation will support students, faculty and staff in small-but-essential, one-time immediate needs. Consider opening your heart and DAF account to lend Aggies a helping hand.