Donor Advised Funds: The Best Financial Tool for Consistent Generosity
Too many people live reactionary lives, tossed around by the latest round of circumstances life throws at them, especially when it comes to their giving. But there’s an easy way to get control of your giving—donor advised funds!
Like most generous people, you probably have a set of values that drive your philanthropy. Whether you’re writing million dollar checks for capital campaigns or giving a one-time gift of $25, there are reasons why you’re giving your money to that particular cause.
Giving is where the tangible world of money and assets meet the intangible world of altruism, kindness, and faith.
In fact, generosity must be driven by conviction because the giver gets nothing tangible out of the transaction.
The only thing you and I get when we give is the satisfaction of knowing we have lived according to our convictions.
But life can and often does get in the way of our convictions.
Convictions, Generosity, & Joy
Throughout life, people find themselves in the middle of circumstances where everything that could go wrong, does. These rough patches in the road often interrupt their giving habits. Or, they get so busy working and raising a family, that giving just wasn’t at the top of their priority list.
Be proactive and intentional in your generosity so that your giving truly reflects your convictions. Share on XFor those who believe they have a responsibility to steward their God-resources, this fluctuation in their giving violates their conviction. The result is that their satisfaction—their joy—wanes.
Instead of being proactive in their giving, they start giving reactively.
But there is a fantastic financial tool that can help you get out of this cycle — and stay true to your philanthropic and biblical values.
Donor Advised Funds
Since the 1980s, donor advised funds (DAF) have been making philanthropy simple for many donors. You can see this is the rising popularity of their use. Since 2010, the amount of money contributed to DAFs rose by 300%!
Since 2010, donor advised fund contributions have risen by 300%. Are you leveraging this financial tool? Share on XDonor advised funds are so simple, I call them a “charitable checking account.” Opening a DAF is like having a private foundation without all of the expenses, headaches, and ongoing annual reporting that a private foundation requires.
Donor advised funds allow you to put in cash or assets like appreciated stock, publicly traded stock, real estate interests, business interests, and even dividends from oil, gas, or water rights.
It’s incredibly flexible.
For example, you can put in a piece of land, an apartment building, or rental property, and it allows you to sell the asset inside a tax-exempt environment—exactly in the same way as if you were giving it to a mission agency, college, or church. Because they’re a tax-exempt entity and therefore they could sell this and appreciate the asset tax-free.
When you open a donor advised fund, you enjoy several key benefits:
- You enjoy the tax-free environment of a nonprofit,
- You get the fair market value deduction of the gift,
- You get to advise on the grants given from your DAF, and best of all,
- Your cash and asset-based giving along with the required paperwork are simplified.
Now we’ve already touched on the idea that you can sell your assets tax-free within the donor advised fund, just as if you had donated that asset to charity. But let’s dive into the tax deduction with an illustration to show you just how much a DAF can improve your financial outlook at the end of the year.
Fair Market Value Tax Deductions from DAFs
Let’s say you put a stock asset into your DAF, and at the time of purchase, you paid $10,000 for that asset. Now let’s say that asset’s value has risen and it’s now worth $50,000.
If you sell the asset, you will save yourself the taxes you would have otherwise paid on $40,000 worth of long-term capital gains. And you will receive a $50,000 deduction on your taxes that same year!
Now that money is sitting in your “charitable checking account.” And you can direct, or rather, you can advise on where the money will be given.
You’ve given up legal control. You can’t demand that the money goes to a specific charity, but you can advise them. Unless you recommend a charity outside of the protocol, bylaws, or boundaries of your DAF provider, then they are going to follow your advice.
If you think you might be giving to something that is a little edgy, you should check with the donor fund provider in advance.
But the beauty of this is that the DAF allows you to sell your asset tax-free, get a deduction, and now make gifts to your different charities out of one pot instead of going through the expense of setting up a private foundation, and then having an audit, keeping up with the accounting, and so on.
Convenience. Consistency. Convictions.
This leads me to the final (and to me, the best) benefit you will experience in using a donor advised fund. Simple, easy accounting and taxes.
As I write this post, it’s tax season. Specifically, it’s the first week of February. I’ve already received my annual report from my donor advised fund provider.
Back when I gave the majority of my gifts to charity by writing each charity checks from my desk, I had to wait for each of them to get their summary of my giving for the previous year to me. Some would be very prompt, and some not so prompt.
This has caused friction for me as I prepared my tax returns.
That friction can add up and stops a lot of people from giving to their full potential. The more charities they give to, the more time they spend working out the accounting and tax details. There’s a point where it’s simply not worth it!
But with a donor advised fund, my wife and I have a tool that makes the administrative work simple and lets us live out our convictions around biblical stewardship.
And because our DAF helps us be proactive in our giving, we are less vulnerable to the “emergencies” or distraction that are bound to happen in life.
If you’re interested in opening a donor advised fund to simplify your philanthropic life and keep you consistent with your convictions, I highly recommend the following DAF providers:
Interested in discussing your options in asset-based giving? Let’s talk!
The call is free, and there’s no obligation.
