Peter T. Waldron, CBEC, MBA, Managing Partner, Waldron Partners
“Charity is injurious unless it helps the recipient to become independent of it.” - John D. Rockefeller
Donor-advised funds (DAFs) are a popular way for individuals to make charitable contributions because they offer a range of benefits that can help maximize one’s philanthropic impact. This article explores some of the advantages to donors and the charities themselves if they choose to use this type of charitable giving vehicle.
Generally administered by a public charity, a DAF is essentially a charitable investment account. Donors can make an irrevocable contribution to the fund, these assets may be invested, and then the assets can be granted to various charities according to the donor’s wishes. One of the key advantages of gifting stock to donor-advised funds is that it allows for a more tax-efficient way to donate appreciated assets. When an individual donates appreciated stock to a DAF, they can typically avoid paying capital gains tax on the appreciation and receive an income tax deduction for the full market value of the donation.
In addition to tax benefits, donor-advised funds also offer flexibility and convenience for donors. Once a donor contributes to a DAF, they can recommend grants to charities at a later time. This allows the donor to make a charitable contribution and receive a tax benefit in the current year while having the flexibility to make grant recommendations in future years. DAFs can also be a useful tool for donors who want to make larger gifts, as they can make a one-time contribution of appreciated stock and then make grant recommendations over time.
Charitable giving can be an important part of an individual's legacy. By donating stock to a donor-advised fund, individuals can integrate giving into their long-term financial planning and create a lasting impact. For example, a donor can contribute appreciated stock to a DAF and then recommend grants to a variety of charitable causes over time. This allows the donor to make meaningful contributions to causes they care about and create a legacy of giving.
In addition to all the ways donors can benefit from using DAFs, there are also advantages for the charities that receive grants. Because DAFs are managed by public charities, they are subject to certain requirements that ensure they are operating in the public interest. This can provide additional confidence for charities that receive grants from donor-advised funds because they have assurance that the funds are being managed by a reputable organization.
While donor-advised funds can offer many benefits, it is important for donors to carefully consider their giving strategy and work with a trusted advisor to determine the approach that best suits their specific set of circumstances. For example, some donors may prefer to make direct contributions to charities rather than using a donor-advised fund. Additionally, donors should be aware that DAFs are subject to certain restrictions and regulations, including rules around how grants can be made and restrictions on the types of assets that can be donated.
Overall, donating appreciated stock to donor-advised funds can be a powerful tool for individuals who want to make a meaningful impact with their giving. By taking advantage of the tax benefits, flexibility, and convenience of DAFs, donors can create a legacy of giving that will last for generations to come.
“If you haven't got any charity in your heart, you have the worst kind of heart trouble.” - Bob Hope
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Disclosure: Lincoln Financial Advisors Corp. and its representatives do not provide tax advice. You may want to consult a tax advisor regarding any tax information as it relates to your personal circumstances.
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Peter T. Waldron is a registered representative of Lincoln Financial Advisors Corp. Securities offered through Lincoln Financial Advisors Corp., a broker-dealer (member SIPC). Investment advisory services offered through Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor. Insurance offered through Lincoln Marketing and Insurance Agency, LLC and Lincoln Associates Insurance Agency, Inc. and other fine companies. Waldron Partners is not an affiliate of Lincoln Financial Advisors. Lincoln Financial Advisors Corp. and its representatives do not provide legal or tax advice. You may want to consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances.