Donor-Advised Funds

As the year winds down, we want remind everyone about the benefits of donor-advised funds (DAF) which can be a great tool for investors that plan on making charitable contributions. Rather than walk through the mechanics of DAF, we've outlined some common concerns that a DAF can help address. If you want to learn more about how they work, we'd be happy to discuss further.

Concern: I want to donate before the end of this year, but don't know where to give (yet).

Solution: You can take a charitable contribution tax deduction in the year that you contribute assets into the DAF. Thus, you can contribute into a donor-advised fund (and take the tax deduction) this year, but donate from it in future years. The benefit is that you can give without rushing to decide exactly where it will all be going. The assets within the donor-advised fund can be invested in the meanwhile.

Concern: I want to sell an asset that has appreciated a lot, but do not want to get hit with capital gains tax.

Solution: If you plan on making charitable contributions, consider donating appreciated assets. When you donate a publicly-traded investment (like a stock, bond, or fund), you can deduct the market value of the donation on your tax return. Additionally, since you never sell it, you never realize any capital gains or associated tax liability. That is the main benefit of donating appreciated assets.

Concern: I'd like to donate appreciated assets, but I'm not sure if the organizations that I support accept donations of securities. 

Solution: Most donor-advised funds can accept non-cash contributions and many can even accept complex assets like real estate, business interests, and so on. If the organizations that you support do not accept securities or if its an onerous process to transfer them in, you can donate appreciated assets into the DAF, sell them inside the DAF, and then donate out to the organization in cash.


If you are thinking about making charitable contributions now or in the future, a donor-advised fund could be a valuable tool for you.