PHILANTHROPY

Donor-advised funds bring tax efficiency and flexibility to philanthropic giving

Examining an easy and thoughtful approach to charitable donations

A Donor-Advised Fund (DAF) is a charitable gift vehicle, administered by a public charity that accepts tax-deductible donations and places them in a donor account to be invested until the donors request that grants be made from the account to qualified charities. 
 
An increasing number of individuals, families and organizations are using DAF accounts in their giving plans as these accounts:   

  • Are easy to establish, flexible and private 
  • Offer immediate tax benefits to the donors 
  • Provides donors with ample time to decide which charities to support and how much to donate 

Investors who own highly appreciated stocks may also use DAFs as solutions for donating those securities—without having to pay taxes on gains—as they decide which charities they wish to fund. 

To get started with DAFs 

  1. Open a DAF Account at an investment firm or commercial gift fund. Your Advisor can help you learn about the DAF solutions available to you. 
  2. Contribute cash, stocks or other assets to your account at any time and receive a tax deduction for the contributions you make to the DAF during that tax year. If you donate appreciated stocks, you can deduct their full market value and eliminate the need to pay taxes on any long-term gains. 
  3. Your money is invested in your choice of pooled investment vehicles while in the account, so the funds have the potential to grow. You may allocate gift contributions of any of the funds available to suit your time frame and investment outlook.
  4. You may make gifts or grant funds from the DAF to IRS-approved public charities at any time, over a period of months or years via phone or online.
  5. You receive tax-ready confirmations of your contributions, grants and quarterly investment statements for the account and all transactions. And all documentation needed for IRS reporting is handled by the fund sponsor.

Additional time and flexibility to make giving more strategic

The ability to grant money at any time from a DAF to the charities you select allows you and your advisors to be more strategic and deliberate with your giving decisions. 

 Instead of worrying about meeting a particular deadline regarding the amount of money or other assets to give to individual charities, you may: 

  • Make single or multiple contributions of assets to the DAF at any time throughout the year 
  • Receive a tax deduction for the year in which your contributions are made 
  • Make individual grants any time in the future to any number of approved charities 

DAFs are an effective tool for a variety of charitable giving situations, for example:

A woman who was selling her business and wanted to give 10% of the proceeds to charity opened a DAF to relieve the pressure of having to select the charities and amounts she wanted to give during a very busy time. The DAF gave her an immediate tax deduction for her contribution in the year of the sale and she had plenty of time to plan and implement her charitable giving strategy. 

An investor with two concentrated, highly appreciated stock positions with a low basis funded a DAF each year with a portion of the stock he was trying to remove from his portfolio. As a result, he was able take a tax-deduction for his contributions each year and remove the assets from his estate without having to pay capital gains taxes on the stock’s appreciation.  

Although a DAF is an attractive giving solution, it's also important to remember that:

You will pay fees for investment management and account administration. Your contributions are considered irrevocable gifts, so you no longer have direct control over them. It is important to note that any future change in the investment value within the DAF’s funds won’t result in additional tax benefits for you, although an appreciation can increase the amount of funds available for granting gifts. 

DAFs vs. private foundations and ad hoc gifts

A DAF can serve as a more private and cost-effective alternative to establishing a private foundation, which involves the time and expense of hiring a lawyer, completing paperwork, submitting regular disclosures and taking on a significant number of administrative duties. 

 DAFs also have advantages over ad hoc gifts as: 

  • Grants can be made quickly and easily via phone or web 
  • You will receive regular, consolidated reports on your giving activity 

For additional help with your charitable giving

If the idea of a charitable giving vehicle that is easy to implement, flexible to use and offers year-round tax advantages appeals to you, we recommend speaking with your Advisor regarding a DAF for your investment portfolio. 

Your Advisor will consider your total financial picture, including long-term estate and legacy goals, to help you decide if a DAF is an effective addition to your charitable giving strategy. 

Katherine M. Sheehan, J.D.

Katie is a Managing Director and Fiduciary Advisor at the Boston office. Prior to joining SVB Private, Katie was a Partner at DesRosiers, Tierney & Sheehan, LLC, and also practiced at Cody & Cody, LLC and Ruberto, Israel & Weiner. Her private practice career concentrated in the areas of estate planning, estate and trust administration, charitable planning, long-term care planning and elder law.

The views expressed in the article are those of the author and/or person interviewed and do not necessarily reflect the views of SVB Private or other members of Silicon Valley Bank and SVB Financial Group. The materials on this website are for informational purposes only, are subject to change and do not take into account your particular investment objective, financial situation or need. Since each client’s situation is unique, you should consult your financial advisor and/or tax planning professional before acting on any information provided herein