A donor advised fund is a gift that lets you keep on giving.

DAF is one way to organize your philanthropic giving and support causes that are important to you, for your lifetime and beyond.

As a donor, you make a grant to a parent charity. That money is used to open an account — the donor advised fund — in your name. The charity manages the fund and distributes gifts from it to specific charitable organizations in response to your recommendation, or advice.

Each time you want to make a gift, you specify the recipient and the amount. Most parent charities make every effort to approve recommendations, provided the funds are going to a legitimate charitable purpose. Final approval for all grants rests with the parent charity.

First things first

The gift you make to establish the fund, and any future gifts, are irrevocable, or nonrefundable. While this might seem to be a drawback, it in effect creates what you might think of as a philanthropic nest egg.

A DAF by any other name

 Parent charities, sometimes called sponsoring organizations, often have their own specialized names for the donor advised fund that they offer. Some of the common versions are philanthropic fund, gift fund, and charitable endowment program. Regardless of what the titles may seem to suggest, at the end of the day they are all donor advised funds.

You commit that money to establish or expand your philanthropic legacy, just as you might assign money to an irrevocable trust for your children, for example, to help them enjoy a secure financial future.

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What fund to choose?

Once you have decided to create a donor advised fund, the next important question is where to open it. There are a few criteria to consider, one or more of which might be a deciding factor for you. For example, some parent charities have restrictions on the types of gifts that can be accepted – not all charities have the ability to liquidate and process real estate, art, or other tangible personal property.

Another key consideration is any special interests or requirements of the parent charity. For example, certain university-run donor advised funds require that a large percentage of your gifts be assigned during your lifetime or at your death to benefit the university — which may be fine with you if supporting your alma mater is one of your main philanthropic interests. In addition, some charities screen out certain types of recipients, and some will approve donor-requested grants only to their own preselected list of charities.

Researching your options with an eye toward matching your individual requirements and objectives with the capabilities and missions of various parent charities is the best way to start the selection process. You may also want to speak with your financial adviser, or a representative from your financial institution, to determine if the parent charities they’re most familiar with are a good fit for you

Why a donor advised fund?

Donor advised funds share some characteristics with other ways you might make charitable gifts, but they also offer a number of unique advantages:

  • Immediate and potentially substantial tax deductions
  • Ability to gift from assets rather than just from income
  • Option to give gifts anonymously
  • Access to streamlined recordkeeping and minimal paperwork
  • Consolidation and organization of charitable giving
  • Low administrative costs
  • Benefit of due diligence done on prospective receiving charities

Funding your fund

Opening your donor advised fund is, in most cases, a simple procedure of completing a form and transferring the initial gift to the charity. One of the benefits of DAFs is that they can usually be funded with a wide range of assets, including cash, personal property, and several types of stock, as well as gifts from other charitable vehicles such as a charitable lead trust. But this initial gift amount is only the seed money, so to speak.

The assets in your account are invested to create tax-free income that can be reinvested. Any reinvested income increases your giving power and the potential benefit to your chosen charities. And, of course, you can continue to contribute additional assets to your fund, on either a regular or irregular schedule.

What Is a Donor Advised Fund?

Your philanthropic legacy

A donor advised fund gives you the opportunity to go beyond a series of individual gifts — it gives you a platform from which to create a legacy of giving. When you establish your fund, you can name advisers and successors, who can be your spouse, your children, or even friends, allowing them to take over the responsibility of recommending gifts on your behalf. Through naming advisers, you can involve those close to you in your philanthropic efforts. And by naming successors, you offer your heirs a way to carry on supporting the causes that are important to you.

What Is A Donor Advised Fund? by Inna Rosputnia

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