What Is a Donor-Advised Fund (DAF)? A Smart, Flexible Giving Solution

Discover the Power of a Donor Advised Fund (DAF)

A donor-advised fund (DAF) is a powerful charitable giving tool that combines flexibility, tax efficiency, and impact. Managed by a sponsoring certified 501(c)(3) tax exempt entity organization, such as CAF America, DAFs allow donors to strategically support causes they care about while enjoying the convenience of a single giving account.

How Does a DAF Work?

With a DAF, you contribute assets to a public charity for future grants. Functioning like a personal charitable account, a DAF allows you to contribute, grow, and grant funds with ease. Think of it as a dedicated investment account for supporting the causes you care about — making it simpler to manage donations while maximizing your impact. Here’s a simple breakdown:

1. Give: Open a DAF account and donate assets such as cash, stocks, mutual funds, or cryptocurrency. Your charitable contribution is tax-deductible at the time of donation. In some cases, it’s as simple as transferring stock from your brokerage account with a single click.

2. Grow: Your donation can be invested, growing tax-free until you’re ready to make grants. You can even recommend investment strategies to maximize your impact over time. Some even offer options for your financial advisor to manage the investment.

3. Grant: Once your fund is established and invested, you can recommend grants to your favorite IRS-qualified charities whenever it aligns with your goals. Whether you support causes locally or globally, you control the timing and purpose of your philanthropy. DAFs can be used to make recurring grants or anonymous grants.

Benefits of Donor-Advised Funds

1. Easy Contribution of Non-Cash Assets

DAFs make it simple to donate non-cash assets, which can often be more tax-advantageous than cash donations. Accepted assets generally include:

• Restricted stock
• Publicly traded securities or mutual fund shares
• Private equity and hedge fund interests
• Privately held C corp and S corp shares
• Cash equivalents (checks, wire transfers, brokerage account cash)
• Cryptocurrencies like Bitcoin

For many charities, handling these assets directly can be challenging, but with a DAF, transferring them is streamlined and efficient.

2. Tax-Free Growth

Once your donation is in your DAF, you can choose how it’s invested, growing tax-free. Over time, this growth can mean more funds to grant, increasing your potential charitable impact.

3. Cost-Effective Giving

Some donor-advised funds, like CAF America’s, have no minimum contribution requirement and charge low annual fees — typically around 1% of the account balance. This makes them more affordable than other giving vehicles, such as private foundations or credit card donations.

4. Enhanced Tax Benefits

Cash Donations: Contributions made in cash are eligible for a tax deduction up to 60% of your adjusted gross income.

Appreciated Assets: Donating long-term appreciated securities can provide benefits. You can deduct the fair-market value of the asset, up to 30% of your adjusted gross income. You can avoid capital gains tax, maximizing both your deduction and the total funds available for charity.

5. Simplified Recordkeeping

With a DAF, recordkeeping is easy. Instead of tracking every donation receipt, you only need to save records of contributions made to your DAF. When it’s time to donate, simply recommend a grant online to any qualified charity.

Understanding DAFs: Key Features and Restrictions

Key features include:

• Support Charities: Recommend grants to any IRS-qualified public charity.
• Grant Anonymously: Choose to make grants anonymously or share donor information.
• Specify Grant Purpose: Add special purposes, honor dedications, or campaign designations to grants.

However, DAFs come with some restrictions:

• Ineligible Organizations: Grants cannot go to non-501(c)(3) entities, such as political organizations, crowdfunding, or private foundations.
• No Personal Benefit: Funds cannot be used for personal benefit items, like event tickets or tuition, as these do not qualify as charitable purposes.
• No IRA Distributions: Qualified Charitable Distributions from IRAs cannot be directed to DAFs.

Using DAFs for Legacy Planning and Strategic Giving

DAFs are also ideal for long-term giving strategies and legacy planning. You can:

Include in Estate Plans: Incorporate donor-advised funds (DAFs) into your estate plans to reduce estate taxes and support multiple charities with a single gift. Options include making a bequest to the DAF sponsor in your will or naming the DAF as a beneficiary of a retirement plan, life insurance policy, or charitable trust.

Create a Succession Plan: Ensure your philanthropic vision continues by creating a succession plan for your DAF. Pass remaining funds to heirs, designated charities, or divide the fund into smaller accounts for multiple successors. If no successor is named, funds are distributed based on the sponsor’s default policies.

DAFs vs. Private Foundations

While private foundations provide more administrative control, DAFs are simpler, more cost-effective, and come with fewer compliance requirements. DAFs also focus exclusively on grants to qualified charities, ensuring compliance with IRS regulations.

How CAF America Simplifies DAF Giving

At CAF America, we make it easy to manage your DAF and maximize your philanthropic impact. As the donor and fund holder, you start by opening a DAF account and making a contribution to fund it. DAFs are especially useful as they allow you to claim tax benefits for donations made up-front while spreading the impact of your charitable giving over multiple years through a thoughtful plan for grantmaking over time.

Whenever you want to support a specific organization, you can submit grant recommendations (advice) that we will consider. While CAF America must make the ultimate decision in regards to making each grant, millions of grants are made from DAFs on the recommendations of their donors each year under our policies and they are a trusted, reliable way to manage a philanthropic strategy over time. We promise you:

• Global Reach: Facilitate grants to vetted organizations worldwide.
• Grant Advisory Support: Recommend grants aligned with your goals. CAF America ensures compliance with regulations and proper use of funds.
• Customized Giving: Add designations or remain anonymous with your grants.

Is a Donor-Advised Fund Right for You?

To see if a DAF is the best fit for your giving strategy, speak with one of CAF America’s financial advisors by contacting info@cafamerica.org. With its flexibility, tax advantages, and ease of management, a DAF might just be the simplest, most effective way to amplify your impact on the causes you care about.

At CAF America, we’re here to make your charitable journey smooth and impactful. We collaborate closely with our DAF holders to identify and facilitate grants to organizations worldwide. Join us in making a difference, one thoughtful donation at a time.