What is a Donor Advised Fund and How is it Used in Planned Giving?

A donor advised fund or DAF is a charitable giving vehicle that provides an easy way for someone to donate assets to multiple charitable organizations in Ohio or other states without the hassle of paperwork for multiple donations. A DAF also provides significant tax deductions for gifts to charity and gives the donor some control over which organizations receive funds without burdening the donor with administrative duties or excessive costs.

The Dayton, OH planned giving attorneys at our firm have found that donor advised funds are an excellent way for individuals and families to create a legacy that will benefit their communities for generations to come.

A donor advised fund is established with a gift of cash or assets. The fund is created by a public charity which has the responsibility of managing the fund and has final control over which organizations receive funding. The donor is given advisory status and may advise the fund manager on which charities to fund and how much to grant them.

DAFs are similar to private foundations in terms of their ability to benefit multiple charitable organizations. But Ohio and federal laws make DAFs easier to get into, less expensive to start and operate, much less hassle for the donor and more favorable for tax deductions. The trade-off is that donors ultimately don’t have control over where the funds are granted to, though it is very rare for the fund manager to go against a donor’s wishes as long as the target charities qualify under IRS rules.

Donor Advised Funds: Advantages and Disadvantages

Advantages

• Higher tax deductions available – donors take a dollar-for-dollar deduction off their federal income taxes up to 50% of adjusted gross income for cash contributions and up to 30% for appreciated securities.
• Unused tax deductions can be carried forward up to 5 years
• Avoid capital gains tax on appreciated securities contributed to the fund
• Lower start-up and operating costs than a private foundation
• Can be started with a smaller amount of assets than a private foundation — as little as $10,000
• Benefits multiple charities without overwhelming paperwork and hassle for the donor
• Donor has advisory status in recommending charities to receive grants from the fund
• Donor can name an advisor other than him or herself to make recommendations
• Additional contributions can be made in the future
• Controlling charity usually performs all due diligence to ensure grantee’s have tax-exempt status
• Enables donors to make anonymous grants if they desire
• No annual distribution requirements (private foundations are required to distribute at least 5% of their assets each year even if fund investments are doing poorly)
• Potential to grow the fund, and thus the contribution, over time through various investment options
• Ability to create a legacy that keeps on giving rather than a one-time donation

Disadvantages

• Assets contributed to a donor advised fund are irrevocable — they cannot be returned to the donor
• Control of the contributed assets and recipients of grants ultimately lays with organization administering the fund, though recommendations of donors or their assigned advisors are usually followed as often as possible
• Administering organization is not legally bound to the donor or the donor’s assigned advisors
• Only charities that qualify for IRS tax-exempt status may receive grants
• Assets eligible for contribution to a DAF are usually limited to cash, mutual funds, bonds, most publically traded securities, and sometimes real estate.

Is a donor advised fund right for you?

There are many things to consider before establishing a donor advised fund. In Ohio, planned giving attorneys at Gudorf Law Group, LLC, can help you determine whether a DAF is right for you and assist in selecting charitable organizations in Ohio and other aspects of charitable planning. Arrange a free consultation with our Ohio planned giving attorneys by calling 1-877-483-6730.