No doubt you’ve heard the term “donor-advised fund” or “DAF.” Let’s explore the donor-advised fund and whether or not it is a good choice for your charitable giving.

What is a Donor-Advised Fund?

A donor-advised fund is an account created by a donor with a public charity. The terms of agreement give the donor, or sometime others, the right to recommend charitable grants from the DAF. Most community foundations offer donor-advised funds as do the charitable affiliates of many investment firms.

How does it work?

You contribute cash, stock, or other assets to your account at the DAF sponsor. Your contribution is irrevocable, and you receive an immediate income tax charitable deduction for your contribution. The DAF sponsor invests and manages the donor-advised fund and allows you, as the advisor, to recommend grants to qualified charities in amounts and at times you choose. As a matter of law, the DAF sponsor is responsible for all distributions from the donor-advised fund and is not required to follow your recommendations.

What are the advantages of a DAF?

A key advantage is the opportunity to separate the timing of your tax-deductible contribution from your decisions about which specific charities you wish to support. This can be especially helpful if, for example, you have a financial event like the sale of a business that results in a larger than usual tax liability; you could make a substantial charitable contribution to a DAF and use the income tax deduction to reduce your taxes. Or, if like many taxpayers these days, you are unable to itemize your deductions each and every year, you might use a DAF to “bunch” your contributions and other income tax deductions into those years when you itemize and then make contributions from your DAF over the years when you do not itemize.

Can I support New College Foundation with my DAF?

Absolutely! Just recommend a grant from your donor-advised fund to New College. Although you won’t get a tax receipt – remember, you already got a deduction when you made your contribution to your DAF – we will recognize you for your contribution and make certain that it is used for our important work. In addition, check with your plan sponsor about the possibility of naming New College to receive the balance in your DAF at the end of your lifetime.