Money Matters

What is a Donor Advised Fund?

12 Jul 2018 by: Matt Showley  , , , , , ,

“What is a Donor Advised Fund?” – This is a question we often hear, so we thought it would be appropriate to share a brief description about what it means to set up, and fund, a Donor Advised Fund (DAF).

What is a DAF?

  • A DAF is a charitable account that allows the donor to make a charitable contribution, they receive an immediate tax benefit, and then from the fund, they can choose where to direct the donations over a period of time. We often see our clients use this type of account to gift highly appreciated assets (like individual stocks) to fulfill philanthropic wishes and for tax planning purposes.

How does it work?

As an example, we will describe what happens if a donor contributes a highly appreciated stock to the donor advised fund.

  • After opening a Donor Advised Fund, the donor can transfer highly appreciated stock from a brokerage account to fund the account. The stock would be sold for cash to be used for your ongoing charitable grants.
  • The donor receives a charitable tax deduction equal to the market value of those assets in the year that they transfer the stock to the Donor Advised Fund.
  • The donor avoids any capital gains that would have occurred if the assets were otherwise sold, assuming the asset were held for more than one year.
  • As long as the charitable organization is a qualified 501c(3) organization, it should be available for charitable grants. The donor may elect to contribute from the DAF anytime, even in subsequent years.
  • The DAF would result in simpler recordkeeping as the tax deduction occurs upon transfer of the stock, rather than with each individual charitable contribution.

Certain exceptions do apply, but using a DAF allows for an added tax benefit and simpler recordkeeping over making traditional cash donations.  CCMI has helped many clients who are charitably inclined implement this tax saving strategy creating win-win situations for them and their charities of choice. If you are interested and would like to know more about Donor Advised Funds, please give us a call.

CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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