Making an Impact: An Introduction to Donor-Advised Funds (DAFs)

It seems like it should be fairly simple: you want to support causes that matter to you while also receiving the available tax benefits for your generosity. Unfortunately, charitable giving can be more complicated than it first appears. One charitable giving tool that can help accomplish both goals is a donor-advised fund (DAF).

A donor-advised fund works like a charitable giving account. You contribute cash, appreciated investments, or other eligible assets to the account and may be eligible for a tax deduction. You can then recommend grants to your favorite charities over time, allowing you to support multiple organizations from one central account.

Many people assume donor-advised funds (DAFs) are only for wealthy families, but that is a common misconception. A DAF can be a simple and flexible way to support the charities you care about by centralizing your charitable giving in one account. Minimum contribution requirements vary by provider, and some DAFs can be established with lower amounts than many people expect, making them more accessible than many people realize.

One strategy some donors use is to contribute several years' worth of planned charitable giving to a DAF in a single year. For example, if your itemized deductions are normally lower than the standard deduction, making a larger contribution in one year may increase your deductions enough to provide a greater tax benefit. You can then recommend grants from your DAF to charities over future years, on a schedule that works best for you. This approach can be especially helpful during years when income is unusually high, such as after the sale of a business, receipt of a significant bonus, or the exercise stock options. 

Many people also wonder what happens to a DAF over time. Generally, there is no requirement to make grants every year, although specific rules vary by provider. Most DAF sponsors also allow you to name successor advisors, such as family members, or designate charitable organizations to receive the remaining assets after your lifetime.

Making an impact in ways that align with our values, compassion, and purpose is deeply rewarding. With thoughtful planning, we can often increase the amount that ultimately reaches the organizations we care about while maximizing the available tax benefits. By being intentional about how we give, we may be able to increase both our charitable impact and the tax efficiency of our generosity. 

If you'd like to learn more about giving through a DAF or other tax-smart giving options, we encourage you to speak with your financial advisor or contact JFS Silicon Valley to discuss ways your charitable giving can support our community.

Victor Adint, Private Wealth Advisor

CWS®, CFP®

237 W. Main Street

Los Gatos, CA 95030

408-402-3059

This material is provided for educational purposes only and should not be considered tax or legal advice. Tax laws are complex and subject to change. You should consult your tax advisor regarding your individual circumstances before implementing any charitable giving strategy.

Donors should consult their attorneys, accountants, or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC, marketed as Adint, Ramaekers and Associates. Investment advisory services offered through Raymond James Financial Services Advisors, Inc.. Adint, Ramaekers and Associates. is separately owned and operated and not independently registered as a broker-dealer or investment adviser.