When it comes to estate planning and charitable giving, there are a lot of tools that can be used to achieve an individual’s estate planning needs.
A donor advised fund (DAF) is just one strategy to consider.
And it’s a good one.
Indeed, donor advised funds are one of the fastest growing charitable giving vehicles.
What is a Donor Advised Fund?
Donor advised funds offer donors charitable giving tax advantages.
With a DAF, you can contribute several years’ worth of donations to the fund, while getting your tax benefits immediately. This can make it more advantageous than taking the standard tax deduction.
Donor advised funds provide an easy way to give to charity while still growing your money until you are ready to distribute your gifts to the charity(ies) of your choice. This makes sense since the sole purpose of a DAF is to support charitable organizations you care about.
The way this works is that donor advised funds are administered by a 501(c)(3) public charity. You, as the donor, fund the DAF —irrevocably— with assets (i.e., money, stock, real estate) that will be controlled by the nonprofit. Once the fund is established, however, you can direct where the money should be donated, how much, and when.
Donor advised are unique. In a way, they are neither fish nor fowl. They do not operate exactly like public charities, nor do they work exactly like private foundations. Rather, they offer the donor the control of a private foundation, while operating more like a public charity.
For example, because they give a donor control over who gets his/her donation, the DAF is like a private foundation. Granted, the control allowed is far less formal than that offered in a private foundation, yet the donor does have a say in the distribution of his/her charitable gift.
Donor Advised Funds and Your Estate Plan
There are other charitable estate planning tools of course, like life estate deeds, charitable trusts, and charitable gift annuities, but using a DAF in your estate planning offers several estate planning advantages.
One advantage is that at the time of your death, the DAF contribution made by your estate may provide estate or inheritance tax benefits, as well as income tax benefits. To find out how this can work for you, consult an experienced estate and trust lawyer.
Another advantage is that a donor advised fund is a flexible estate planning tool. Instead of naming a specific charity under your Last Will & Testament (“Will”) or trust (or other estate planning instrument), if you name a specific DAF account, then you can move ahead with completing your estate plan even if you have not decided which charity you want to give to. Similarly, if you change your mind later about the charities you want to give to, or the amounts you want to donate, you can do that without having to modify your Will or trust instrument.
Your DAF succession plan will specify who you want to recommend grants for you after your death, as well as how the funds should be distributed, so that your charitable legacy can be carried out.
If you have more complex assets, like art, real estate or privately held companies, a DAF can provide an easier way to make charitable gifts of such assets, or if you simply need more time to finalize your giving strategy. Between the time you fund a DAF and finally make up your mind, your assets have the potential to be invested and grown tax-free.
Finally, a donor advised fund can make the administration of your estate run more smoothly.
Well, for one thing, having a donor advised fund provides your personal representative with clear instructions on how you want certain assets distributed. In addition, because it can coordinate multiple distributions to several charities in one fund, it makes the entire process much simpler.
So, is a donor advised fund right for you? Talk to your estate lawyer and find out.
Bringing You Peace of Mind and Customized Estate Plans
At the SJF Law Group, you get more than just an estate plan: you get peace of mind. We work hard to ensure that your wishes will be followed, and your loved ones taken care of when you are gone. Connect with us on Facebook or Instagram or email us at: [email protected] today.