According to the National Philanthropic Trust, Americans gave $358.38 billion to charities in 2014, a 7.1% uptick from the previous year. And with the deadline for deducting charitable contributions approaching on Dec. 31, now is a good time to give back to an organization and/or support a current relief effort.
While there are multiple vehicles available to help support philanthropic giving, we find that donor-advised funds (DAF) tend to be the most efficient and effective giving vehicles. They are simple, low cost, and flexible. They allow donors to maximize the tax benefits of charitable giving while supporting their favorite organizations.
What is a Donor-Advised Fund?
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
A DAF is simply an account that helps givers manage their charitable contributions. Through an agreement with a DAF provider, a donor creates a specially named account (i.e. “Smith Family Fund”) to which irrevocable contributions are made. The donor receives an immediate tax deduction but is not forced to make any grants. They can work with their adviser to invest and grow the assets and recommend grants to their favorite non-profit, 501(c)(3) organizations at their leisure.
Why Use a Donor-Advised Fund?
Simplicity. Unlike a private foundation, the donor is not responsible for hiring attorneys and accountants or maintaining a board of directors. The sponsoring organization that holds the fund takes responsibility of all the expensive administration work, including filing annual returns and preparing financial statements.
Tax Efficiency. DAF contributions provide a federal income tax deduction up to 50 percent of adjusted gross income for cash contributions and up to 30 percent of adjusted gross income for appreciated securities. Along with publicly traded securities, DAF holders can also contribute complex assets such as real estate, limited partnership interests, private C- and S-Corp stock, and other privately held assets.
Flexibility. DAF holders receive an immediate tax deduction for their contribution but they are not subject to a legal minimum payout requirement like a private foundation. The flexibility helps donors maximize tax benefits while helping them be more systematic and methodical about their giving.
If you haven’t engaged in charitable giving yet, now is a great time to start. And in doing so, consider the benefits of a DAF—to you and to the future recipients.
Taylor Schulte, CFP® is founder and CEO of Define Financial, a San Diego-based fee-only firm. He is passionate about helping clients accumulate wealth and plan for retirement.
-
Three Ways to Help Create Financial Stability for a WidowLoss of a spouse often leads to financial insecurity in retirement. These strategies can help ensure financial stability for the surviving spouse.
-
How to Embrace Personal Growth After a Gray DivorceDivorce at any age is a traumatic event, and resetting psychologically, especially after a late-in-life divorce, is more important than ever.
-
Three Ways to Help Create Financial Stability for a Widow
Loss of a spouse often leads to financial insecurity in retirement. These strategies can help ensure financial stability for the surviving spouse.
-
How to Embrace Personal Growth After a Gray Divorce
Divorce at any age is a traumatic event, and resetting psychologically, especially after a late-in-life divorce, is more important than ever.
-
Three 'Yellowstone' Estate Planning LessonsWe can learn a lot from John Dutton's estate planning mistakes. Here are just a few that relate to families in general and family businesses in particular.
-
Claim It Early or Delay? When to Start Taking Social SecurityTiming is everything when it comes to starting Social Security. Here are the top reasons why people choose to delay or take it early, according to one expert.
-
One Simple Tip for Planning the Three Stages of RetirementDreading the idea of retirement? This planning technique for the 'go-go, slow-go and no-go years' can lessen the worry and help you save efficiently.
-
Digital Asset ETFs: A Less Risky Way to Invest in Crypto?There's a growing appetite for new ETFs that make it easier to invest in cryptocurrency, including bitcoin. But investors should still proceed with caution.
-
Do You Feel Like Somebody’s Watching You? It's Your CarWhat's worse, you gave your vehicle manufacturer permission to watch you — no matter what you're doing. What are the car companies doing with that information?
-
Three Possible Tax Impacts for Retirees Under TrumpHow might a second Trump term affect your tax bill in retirement — or the inheritance tax bill for your heirs? This pro has three predictions.
