A donor-advised fund is an account that lets the donor direct how and where to distribute assets in the fund. Donor-advised funds can simplify making charitable contributions to favorite causes and also provide the donor with valuable tax deductions. Gifts made to donor-advised funds can be deducted from current income, subject to limitations. Cash gifts can be deducted up to 60% of adjusted gross income, while gifts of other assets, such as stock, can be deducted up to 30% of adjusted gross income. Consider working with a financial advisor to set a donation plan that’s right for you.
Donor-Advised Fund Basics
Donor-advised funds are special accounts set up to facilitate charitable giving. The accounts can be created easily online using public charities set up by financial services firms. Donor-advised fund sponsors may require no minimum initial contribution. However, the financial services firm will charge an annual fee for sponsoring the account.
Once created, assets such as cash or stocks can be transferred into the fund using online transactions. Assets transferred into a donor-advised fund no longer belong to the donor but are owned by the sponsoring organization. Transfers are irrevocable, meaning the donor can never regain control of them for personal use. However, the donor can select and recommend IRS-qualified 501(c)3 charities to receive gifts from the fund’s assets.
Benefits of Donor-Advised Funds
Unlike a private foundation, a donor-advised fund doesn’t have to make any grants. When the donor dies, the remaining assets in the fund can be bequeathed to heirs to continue the charitable legacy. Heirs can serve as advisors to the fund’s charitable grantmaking activities, but assets still can only be used to support recognized charities.
Donations of non-cash assets, such as stocks, are likely to be easier to make to a donor-advised fund than to a charity. Non-cash assets generally accepted by donor-advised funds include shares of publicly traded companies, bonds, mutual fund shares, private business ownership interests, life insurance, IRA assets, oil and gas royalty interests and cryptocurrency.
Another attraction of donor-advised funds is that donations to charities can be made anonymously. This makes them appealing to people who want to maintain privacy about their charitable work.
Donor-Advised Fund Tax Deduction Details
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The number of donor-advised funds in the United States rose to more than one million in 2021, according to a survey by the National Philanthropic Trust of 976 trust sponsors. One reason for the growth of donor-advised funds is the availability of significant tax deductions. When the owner of a donor-advised fund makes a gift to the fund, it can create an immediate tax deduction to apply against current income. The deduction for a gift made in cash is limited to 60% of the giver’s adjusted gross income. Gifts of other assets can be deducted up to a limit of 30% of adjusted gross income.
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