What is a Donor-Advised Fund & How to Get Started?
Maybe you’ve heard about donor-advised funds before, or perhaps it’s a brand new concept. Either way, it’s safe to admit that it can be a little overwhelming at first. Donor-advised funds are gaining much popularity with charities and donors interested in maximizing their impact and tax benefits.
Before diving into how to get started, let’s start simple:
What is a donor-advised fund?
Donor-advised funds are a one-stop-shop for managing personal charitable giving.
It is an account where you can deposit assets for donation to charity over time. The donor gets a tax deduction for making contributions to the donor-advised fund. A sponsoring organization manages the account; the donor recommends how to invest the assets and where to donate them. Technically, once assets are deposited into a donor-advised fund, the sponsoring organization has legal control over them. But as long as you choose a charity that the IRS recognizes as a U.S. charitable organization, the sponsoring organization will usually use your charities of choice.
What are the benefits of donor-advised funds?
Donors who use donor-advised funds can maximize tax benefits and grow their contributions over time, making more charitable dollars for nonprofits. It is also one of the best ways to simplify donations, reducing personal administration.
Can I give to the National Foundation for Cancer Research (NFCR) via a donor-advised fund?
NFCR utilizes the Donor Advised Fund Direct Service, which allows you to direct your donations to NFCR with a simple click of a button.
How can I get started with a donor-advised fund?
1. Contribute assets
To establish a donor-advised fund, you make an irrevocable contribution of personal assets—which could include cash, stock, real estate, and more. Your gift is recorded as a donation to NPT, and the balance will be reflected in your donor-advised fund account. National Philanthropic Trust accepts the widest range of assets, helping you turn just about any asset into philanthropic capital.
2. Receive an immediate tax deduction
When you contribute to your donor-advised fund, you may be eligible to claim an itemized tax deduction for federal and/or state income tax purposes. Because National Philanthropic Trust and other donor-advised fund sponsors are public charities, your donation is considered a tax-deductible charitable contribution. The deduction amount will depend on several factors, including the type of asset donated and how long you have owned it. This arrangement allows you to plan your gift to take the tax deduction when it makes sense for you and recommends grants to your favorite charitable organizations at any point in the future. Learn more about donor-advised fund tax benefits.
3. Personalize your donor-advised fund account
As you establish your donor-advised fund account, you can structure it in a way that best meets your charitable goals. You can name your donor-advised fund (DAF) anything you would like; appoint friends and family members to help you manage the responsibilities of a DAF; and design a Legacy Plan to determine what will be done with your DAF assets beyond your lifetime, which may include appointing successors or charitable beneficiaries.
4. Invest your DAF assets for growth
You can recommend an investment strategy for the assets in your donor-advised fund account by selecting an allocation from among the pre-approved investment offerings. The assets in your DAF are invested following your recommendations. Any investment growth is tax-free, giving you the potential to create even more philanthropic capital for grantmaking.
5. Support your favorite charities, now or in the future
As soon as your DAF is established and funded, you can recommend grants to the charitable organizations closest to your heart. NPT can approve grants to most organizations that are tax-exempt under Internal Revenue Code (Code) Section 501(c)(3) and classified as public charities under Code Section 509(a), as well as certain private operating foundations. Our team performs due diligence on every grant recommendation to ensure that your grant money will be used for charitable purposes. You can make single or recurring grants, either with recognition or with total anonymity.
NFCR also offers traditional and unique methods of charitable giving. For example, you can:
- Give a one-time or set up a monthly donation
- Donate stocks or financial assets
- Gifts through wills
Explore even more ways to give back here.
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