by Matt Darpel, president, Care Net Board of Directors

A donor-advised fund (DAF) is an investment account for the sole purpose of supporting charitable organizations you care about. You can support any IRS-qualified public charity with grant recommendations from the donor-advised fund.

How a DAF works: you make a tax-deductible donation of cash, stocks or non-publicly traded assets such as private business interests to be eligible for an immediate tax deduction. DAF contributions are irrevocable; funds cannot be returned to the donor or any other individual or used for any purpose except grantmaking to charities. Total fees typically amount to about 1% of the balance.

How do I benefit from using a DAF? While you decide which charities to support, your donation can potentially grow, making even more money available for charities. Most sponsoring organizations have a variety of options from which you can recommend an investment strategy for your charitable dollars.

Also, instead of keeping track of every receipt from every charity you support, you need receipts only from your DAF contributions. When you’re ready to support your chosen charity, you can log in to your account and recommend a grant to any IRS-qualified public charity.

Some donations may make you eligible for other tax benefits:

  • If you donate cash via check or wire transfer, you’re generally eligible for an income tax deduction of up to 60% of your adjusted gross income.
  • Donating appreciated securities instead of liquidating the asset and donating the proceeds can maximize both your tax benefit and the overall amount available for grants. These donations provide two tax benefits:

1) eligibility for an income tax deduction of the full fair-market value of the asset, up to 30% of your adjusted gross income; and

2) eliminating capital gains tax on long-term appreciated assets, as long as they’ve been held more than a year.

Contact your financial advisor for more information and advice, including incorporating DAF in your estate planning.