Charitable Trusts

A donor advised fund, or DAF, is a way of setting up a charitable trust when you have not yet determined which charity you would like the funds to benefit. It operates in many respects like a private nonprofit foundation, with some important distinctions. This form of charitable gift is growing in popularity because it allows the donor to exercise more control over how the funds are used. Further, it allows a donor to time the donation in order to achieve maximal tax benefits, without having to arrange all of the details of how the funds are to be invested and donated up-front.

Another advantage of this form of charitable gift is that it allows for your family to participate in deciding how the gift is distributed when you pass away. This can serve as a good way to get other family members interested and involved with your philanthropic efforts.

As with other forms of charitable trust, donations of appreciated assets to Donor Advised Funds are not subject to capital gains tax, and the donor can receive a deduction for the full appreciated value of the assets in addition. This can result in substantial tax savings, while still benefiting one or more charities that you may select at a later date.

Further, Donor Advised Funds are not nearly as heavily regulated by the IRS as nonprofit foundations created under internal revenue code 501c3. For that reason, they are often employed by those who might otherwise set up a non-profit foundation, but who desire more simplicity and less regulation. Similarly, there are significant costs associated with establishing a non-profit foundation, including staffing, legal fees, facilities, and the like. Donor advised funds can allow donors to avoid these expenses, allowing more of the gift to benefit charity directly.

One thing to note, however, is that donors to Donor Advised Funds can sometimes have less control over the assets in the fund than those held by traditional nonprofits. As with other vehicles for charitable giving, it is best to consult a qualified attorney and tax advisor before embarking.

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