What is a Donor Advised Fund?
If you have special charitable goals, you may want to consider a donor-advised fund (DAF). A DAF lets you set up charitable accounts at a variety of institutions — like community foundations, financial institutions, and national foundations — and donate money through them to your favorite causes.1 You can also create a DAF directly through an individual nonprofit.
The money in a DAF can be used to fund multiple charitable organizations, provided those charities are registered 501(c)(3) organizations.
Some people think you need to be super affluent to create a DAF. The good news is you don't need millions to establish your DAF. You can open a DAF with as little as $1,000 at a sponsoring organization, which you can write off on your taxes immediately.2
Read on for more about the why you may want to use a DAF for charitable donations, options for how to set up a DAF, and more details on how they work.
Why use a donor-advised fund rather than donate directly?
You may be wondering why you'd want to donate through a DAF rather than just give the money to your favorite charities directly. Here are some reasons you may prefer to donate through a DAF:
Simplified paperwork. DAFs allow you to make multiple donations annually to your favorite charities from one fund. There aren't multiple checks for you to write against personal funds with receipts to manage. This makes writing the donations off on your taxes — provided that you itemize — easier, with less paperwork.
Assurance on tax deductible status. These sponsor groups should also make it safer to donate those funds than doing so on your own. They carefully qualify for legitimacy the charities they choose to make grants to on your behalf before making the funds available to them from that sponsor group's funds. That includes making sure your donations go to those registered with the IRS as 501(3)(c) organizations, because they won't otherwise be tax deductible.
Privacy. Moreover, a DAF allows you to donate funds in its name rather than yours, giving you more privacy in the process. You have the flexibility to make private donations or give grants in the name of the DAF.
Ability to donate complex assets. You aren't limited to cash contributions. DAFs also accept other assets like securities, stock, and real estate.3 As these assets grow over time, they increase your ability to donate over time to the organizations of your choice.
If you have complex assets and want to avoid paying capital gains tax from selling them first, donating them directly to a DAF might a good solution.4
Expert help. If you set up a DAF through a foundation or financial institution, an expert who understands all facets of DAFs can help you determine where and how to make grants.
Where should I set up a DAF?
There are several different types of organizations and institutions you could set up a DAF with. Which one makes the most sense for you depends on how much you're planning to contribute, the types of nonprofits you want to donate to, how many organizations you want to contribute to, and your goals.
Community foundation. A community foundation is a public charity specific to a geographical area that pools funds to provide to local or regional charities. Individuals, families, businesses, and sometimes governments fund these. There are multiple community foundations to choose from in Georgia and Florida. The Community Foundation for Greater Atlanta5 serves the 22 counties in the metro Atlanta area and its total annual giving is $113,804,910.6 In Florida, the Community Foundation of Tampa Bay, Inc.7 serves Hillsborough, Pinellas, Pasco or Hernando counties and gives $146,000,000 annually.8
If you're looking for a method to give to the charities nearest to your heart while maximizing your tax deductions, consider a donor advised fund.
If you're looking to donate to local or regional organizations with a specific mission (like fighting hunger), you may want to set up a DAF with a community-based foundation that focuses on that goal. Community-based foundations usually know the organizations that best meet your charitable goals and specialize in managing DAFs for that community or mission. You'll pay a modest DAF management fee for as long as there are funds in the account.
An individual nonprofit or institution. You also can establish the DAF directly with the organization you want to benefit, like a nonprofit or educational institution. Setting up a DAF directly with the organization you want to fund typically means your money will be put to use the fastest. But you need to be sure that the organization is qualified to manage your DAF.
For managing your DAF, the organization gets administrative fees, and those fees can vary by organization.9 Those fees benefit the nonprofit, which may use them to make charitable donations. It makes sense to ask not only what the administrative fees are, but where they go and whether they reduce the funds in your DAF.
National foundations and financial institutions. National foundations (like the Donor's Trust) or financial institutions (like an investment firm) allow you to open DAFs with them, too.10 They have more resources and staff to help you manage your DAF, but they come with higher account minimums and management fees. They are also better equipped to help you make grants to national or international causes, though.
Single-issue charities. These are exactly what they sound like, charities that support single issue initiatives or campaigns with the funds in DAFs and other donations. Be careful to ask questions about these charities to ensure they support organizations that thoroughly share your values.
What happens once I add my contributions to a donor advised fund?
When you make a contribution to a DAF, you get an immediate tax deduction — even if your contributions don't all go to a nonprofit directly during that tax year. And the funds invested in a DAF grows tax free.
After you make your first donation, the organization where you opened your DAF gets control over the account. They'll look to you to advise them on where you want to make donations, but they can decline to donate the funds to the organization of your choice.
That's why it's essential to understand the policies of the organization before you choose them to manage your DAF — especially since the donations to you DAF are irrevocable.
Thinking about setting up a DAF? Talk with a Synovus financial advisor to better understand the implications of donations on your finances — and to see if a DAF could be right for you.
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Important disclosure information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
- Council on Foundations, "Donor Advised Funds," accessed August 1, 2022. Back
- Lawson Bader, "Charitable Trade-offs Between Donor-Advised Fundsand Private Foundations," Kiplinger, March 22, 2022, accessed August 1, 2022. Back
- Donor's Trust, "Donor-Advised Funds," accessed August 1, 2022. Back
- American Endowment Foundation, "Reduce Capital Gains Tax andOther Tax Benefits," accessed August 11, 2022. Back
- https://cfgreateratlanta.org/, accessed September 2, 2022. Back
- The Grantsmanship Center, "The Community Foundation of GreaterAtlanta," accessed September 2, 2022. Back
- https://cftampabay.org/, accessed September 2, 2022. Back
- The Grantsmanship Center, "Community Foundations: FL," accessed September 2, 2022. Back
- Atlanta Beltline, "Help Move the Atlanta Beltline Vision Forward," n.d., accessed September 2, 2022. Back
- https://www.donorstrust.org/, accessed September 2, 2022. Back