What Is a Donor-Advised Fund?
Authors: Bo Bowden, Tommy Herndon, and Courtney Howell
A Donor-Advised Fund (DAF) is a simple, flexible and tax-efficient way to give to your favorite charities. A donor-advised fund is like a charitable investment account for the sole purpose of supporting charitable organizations you care about. When you contribute cash, securities, or other assets to a donor-advised fund, you are generally eligible for a tax deduction in the year in which the DAF contribution is made. Of course, each individual tax situation is unique, and considerations such as the standard deduction apply.
A contribution to a donor-advised fund is an irrevocable commitment to charity. A Foundation-managed DAF requires that at least 50% of annual distributions are given to United Methodist causes. The funds cannot be returned to the donor or any other individual, or used for any purpose other than grant-making to charities. When you give to a donor-advised fund, the deduction is eligible that year, though you may decide to distribute gifts from the DAF over several subsequent years.
Here are some reasons to consider a DAF:
- Creating a tax-deductible gift account in a single year for distribution in multiple years is known as “bundling.” When the standard deduction was increased in the 2018 tax law changes, many individuals reconsidered how to strategically make year-end gifts. Some individuals found that bundling is the only way by which their charitable contributions are fully tax-deductible. Consult your accountant about your own case.
- When appreciated stock is put into a DAF, the capital gain tax on long-term appreciated assets is avoided, as long as the stock has been held for more than a year. An added benefit is that if you allow the Virginia United Methodist Foundation to sell the stock, there will be no broker fee. While you’re deciding which charities to support, your donation can potentially grow, making available even more money for charities.
- With a donor-advised fund you cannot support any organizations other than an IRS 501(c)3. The proceeds cannot be used for a political or crowd funding campaign. Private foundations are also ineligible to receive donor-advised grants. You cannot use a donor-advised fund for a grant that may provide a personal benefit such as school tuition for a grandchild or tickets to a charity event that you will attend.
Donor-advised fund dollars are to be strictly used for charitable purposes. Many set up a DAF and designate how much their church is to get each year. The Virginia United Methodist Foundation is happy to set up a donor-advised fund for you. Call Tommy Herndon at 804-521-1157 or Courtney Howell at 804-521-1159.
