Involving Your Family in Charitable Giving With a Donor-Advised Fund
By Raymond F. Ciccarelli
Finding opportunities to bring your family members together could be a challenge for many individuals. Work, school, and life obligations can put a strain on “family time” and create a disconnect between members. Participating in charitable giving could be a beneficial way to gather your family together around a worthy cause. There are many ways your family could become philanthropically involved. One option you may want to consider is a donor-advised fund.
A donor-advised fund (DAF) is a specific type of fund that allows you to make charitable contributions and receive an immediate tax deduction for your gift. The accounts are controlled by a nonprofit sponsoring organization, and they invest the assets and manage the donor’s account. Donors retain advisory privileges to disburse charitable gifts over time and advise on how the funds are used. Donations made to the fund are irrevocable, and while you get to enjoy the immediate tax benefits of your charitable contribution, you are not obliged to distribute to an IRS-qualified public charity until your choosing. Contributions can continue to grow and compound for years while you and your family decide where your support is most needed.
Donor-advised funds could be a great option for family philanthropy due to their flexibility, tax-favorable treatment, and longevity. There are nearly half a million donor-advised funds across the country, with that number increasing steadily every year. Some sponsoring organizations may have contribution minimums and certain donation rules. DAFs, in general, are a favorable option for nearly any family situation. Some of the potentially beneficial aspects of a donor-advised fund may include:
Fewer time constraints
There could be a great deal to consider when deciding where you would like to donate and how you hope those funds are utilized. When donating the traditional way, where you give money directly to a charity, you need to know who and how much you would like to contribute at the time of the donation. For individuals involved in a charitable endeavor, this may not be an issue. Those not actively involved in an organization might need time to discover a non-profit they would like to build a relationship with. Donors can donate to a DAF for years until they decide where they would like the funds distributed.
Tax-efficiency
Donor-advised funds could be one of the more tax-efficient ways to conduct philanthropy. When a person donates to a DAF, in almost every case they receive an immediate tax deduction. Since they are considered a public charity, individuals can typically deduct a larger portion of their contributions than contributions made to a private foundation. Most can receive a deduction of up to 30% of their adjusted gross income (AGI) and some could even receive as high as 60%. For some, it could also be a great way to avoid capital gains taxes. By donating a highly appreciated asset to a DAF directly, rather than liquidating it and then donating, donors may be able to eliminate the taxes they would have incurred.
Flexibility with donations
There are various ways a person can give, and DAFs are often very open to accepting both liquid and illiquid forms of support. Depending on the sponsoring organization, they will usually accept a broad range of asset types. Most welcome cash, publicly-traded assets like stocks, mutual funds, and bitcoin. Some will even accept private equity, real estate, and artwork. They may require you to make a yearly minimum gift deposit, but most are quite lenient with the donation schedule, allowing you to gift at your own pace.
Long-term capability
Many involved philanthropists hope that their charitable endeavors will extend beyond their lifetime. The involvement of your children and grandchildren in your family’s donor-advised fund could potentially serve as a cornerstone of your children’s philanthropic legacy. DAF is typically a stable long-term charitable giving vehicle. Donors can contribute funds into the account for years before granting out funds, allowing it to grow and generate more for charity. Some may also have the ability to dictate in their Will that contributions occur even after their passing or their successors may continue to donate themselves.
Engaging family tradition
Traditions bring families together and often serve as a cornerstone of your family’s legacy. The technical work of making a family charitable donation could be a difficult task. Since it is very common for family members to live in separate regions, the pressure of deciding on where and when to give could rush the process and cause a strain on familial relationships. A DAF allows family members to place their donations and then make their charitable selections at their convenience. They could also perform the more technical tasks of the donation process and vetting of nonprofits to check that your support is going to legitimate nonprofit organizations.
Giving as a family could be a wonderful way to make memories and engage with your community. In today’s fast-paced world, where technology often takes the place of close connections, it could be important for families to find a cause that brings them together. A donor-advised fund could give your family more freedom in the process of charitable giving and foster a philanthropic legacy for generations to come. The upcoming holiday season may have many in the spirit to give. If you or your family are considering opening a donor-advised fund to provide support, your advisor could assist you with the process.
Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation. Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.
