Michael Kitces writes about donor advised funds (“DAF”), focusing on rules, strategies and tactics advisors might employ.  His article begins as follows:

The primary benefit of a donor-advised fund (DAF) is that it allows someone to donate assets for charity today – and receive a tax deduction now – even though the actual funds may not be granted to the final charity until some point in the future. In other words, the donor-advised fund essentially functions as a conduit, where the donor receives a tax deduction when the money goes into the DAF, but has discretion about when the assets will finally leave the DAF and actually go to the charity… and in the meantime, assets inside a donor-advised fund grow tax-free.

Given the potential of a donor-advised fund to separate the timing of the contribution and tax deduction, from the final donation to the charity itself, the most common strategy for using a donor-advised fund is to “front load” charitable contributions in a high income year – when the tax-deduction threshold for charitable contributions will be higher – and then use the DAF to make subsequent distributions to the charities themselves in the future. By using the strategy, the donor can maximize the value of the tax deduction in a high-income year, but retain the flexibility to decide in the future to which charities the funds will actually go.

Notably, though, the donor-advised fund as a vehicle provides a mechanism for other charitable giving tactics as well. For instance, the donor-advised fund can facilitate giving anonymously, or creating an “In Memoriam” fund. The DAF can also help facilitate donating appreciated securities to a smaller charity that doesn’t have the means of handling the donation directly. And for some families, the donor-advised fund can function as a less expensive alternative to a private (non-operating) foundation, providing a means for the whole family to engage in the process of charitable giving, while allowing the tax-free growth of a family’s charitable legacy.

Among other things, Michael discusses the following:

  • What is a DAF and how does it work?
  • What are the requirements to establish a DAF?
  • Common strategies for DAFs.
  • DAFs versus Private (Non-Operating) foundations.
  • Other reasons to set up a DAF.

See full article at: Rules, Strategies, And Tactics When Using Donor-Advised Funds For Charitable Giving | Kitces.com

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.