Your DAF, established and invested, can be the start of something good. With all the ins and outs, details, and decisions about the best way to support your philanthropic goals, it may be easy to lose sight of an essential element – helping people, organizations, and causes that are dear to you.
Laying a framework for your philanthropy is a forward-thinking way of helping to make sure that your generosity has its maximum impact and will continue to help others throughout your life and the lives of your heirs.
Creating a donor-advised fund can help you chart a course for giving, both in terms of scope and longevity. A DAF can exist in perpetuity through many parent charities, which means that your heirs can advise the fund after your death.
If the fund is left without advisers or successors, or if you have not recommended any grants for a few years, many parent charities will continue making grants from your remaining account. Keep in mind that gifts are aligned with the area of charitable interest that you designated when you opened the DAF.
When does a legacy begin?
The idea of starting a legacy may seem too grandiose or self-important. But what it’s really about is sharing your good fortune – perhaps by giving back to the community that fostered you or helping others who are less privileged. In fact, there may be certain specific events from which you have benefited financially that inspire you to give back and share with others.
Philanthropy is important in these circumstances in the context of smart tax or estate planning – avoiding capital gains tax or getting deductions on federal income tax. But these events or times in your life are also likely to motivate you on an emotional level as well.
One of the best ways to build a legacy is through donor-advised funds. Generally, donor-advised funds (DAFs) are charitable giving accounts administered by public charities.
A few of the instances that could be a catalyst for formalizing your philanthropic efforts might be:
- Receiving an inheritance
- Getting a bonus
- Exercising stock options
- Selling your business
- Updating a will or estate plan
By starting your legacy through the DAF, you may have many advantages:
- Involve family members in DAF management.
- Appoint loved ones as individual successors.
- Save on income taxes.
- Support your favorite things now and beyond your lifetime.
The Donor-Advised Fund is one of the most flexible tools for charitable gift planning. Assets donated to a DAF can be held, invested, or granted to qualified nonprofits. DAFs have gained popularity because they are both more affordable to start and easy to maintain.
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In a literal sense, a donor-advised fund increases your charitable legacy because the assets you initially contribute to open the fund can be invested for growth. In addition, as the gift is irrevocable, any increase in the fund’s value from investment income is tax-free. It also assures that even more grants, perhaps in more significant amounts, may be made to the charities of your choice – thus furthering your ability to support these causes.
Charities as beneficiaries of DAF
With some parent charities, instead of naming successors to your donor-advised fund, you may be able to choose to gift the entire remaining amount of the fund to a charity or selection of charities upon your death – essentially, naming the charity as your beneficiary.
Establishing a donor advised fund can be an effective way to create a reserve fund for your charitable giving. Of course, as in all investment scenarios, it is possible that your donor advised fund account could decrease in value. But a growing number of people are finding that creating and managing a DAF is a useful tool for living a philanthropic life.
Donor-Advised Fund Account as a Beneficiary of Your Retirement Plan
Your retirement plan is designed to benefit you during your post-employment years. However, you may name beneficiaries for your project if you pass away with money still left in your account. In addition, you can donate your retirement accounts to DAF sponsors at death to avoid significant taxes on the distribution of the assets to heirs. So the total amounts can be used for charitable purposes.
Donor-Advised Fund Account as a Beneficiary of Your Will or Revocable Living Trust(s) A bequest is a way to leave money to charity through a will or trust after death. It costs nothing now, but it can support a charitable organization’s future while leaving a lasting legacy.
Donor-Advised Fund Account as a Beneficiary of Your Charitable Remainder Trust(s)
If your DAF is the beneficiary of a charitable remainder trust, the trust’s assets can ultimately go to any charity the advisors of the DAF recommend. This gives you and your heirs the flexibility to meet the world’s changing needs. In addition, naming the DAF as the remainder beneficiary provides excellent flexibility to the donor and advisor if the advisor or donor changes wealth management firms.
You may designate your donor-advised fund account as the beneficiary of a life insurance policy or make a gift of the policy itself.
Or, in many cases, you may be able to stipulate that 5% of the assets be granted annually to the charity of your choice after you and other original donors have died.
Naming the successors and advisers for your DAF
When you establish your fund, you can name advisers and successors, allowing them to take over recommending gifts on your behalf. You can involve those close to you in your philanthropic efforts by naming advisers. And by naming successors, you offer your heirs a way to carry on supporting the causes that are important to you.
Naming advisers and successors to your fund is an excellent way to involve family members and loved ones in the charities and causes you’re committed to. Because your advisers can be actively involved in the grant recommendation process, asking your children to play these roles allows them to get involved in your interests and helps you pass on your values to them. Donors establishing an advised fund may designate any person over 18 years of age to be an adviser on the fund. Successors, who frequently started as advisers, have the opportunity and responsibility to carry the torch you lit in your lifetime. They take over all the duties of a donor, including making contributions, recommending grants, and naming new advisers and successors.
The donor’s chosen advisors retain the authority to recommend grants to charities at their own pace throughout the fund’s life. Successors and advisors are likely to continue to support some or all of the charities the DAF creators have funded.
Partner with a private foundation
If you have a private foundation, you are undoubtedly already well acquainted with establishing a philanthropic legacy. But having a foundation does not preclude you from adding another way to further your charitable initiatives. In fact, a donor-advised fund can be a valuable complement to your foundation because DAFs offer flexibility in certain areas that private foundations do not.
For example, there may be causes or charities that you would like to support but cannot fund because they do not fall within the stated mission of your foundation. Or, there may be a grant that you would like to make anonymously to maintain privacy – impossible to do through a foundation because all grants are a matter of public record. But you could easily make either of these types of grants out of your donor-advised fund, thus expanding your charitable mission in whatever direction you choose.
Creating A Legacy With Your DAF by Inna Rosputnia
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