What is a Donor-Advised Fund (DAF)?
Have you ever dreamed of leaving a lasting mark on the world, one that resonates with your values and vision? Since we are now in an era shaped by global violence and economic uncertainty, it’s no surprise you might be seeking a connection to the good in the world once again. Yet, within this backdrop of challenge, there lies a remarkable opportunity for those with the means to make a difference. In the world of philanthropy, a tool that stands out for its flexibility and impact is the Donor-Advised Fund (DAF).Â
It’s not just about giving back; it’s about channeling wealth into meaningful action, offering hope and support where it’s most needed. For individuals seeking to leave a mark that transcends the volatility of today’s world, a DAF offers a path to create a lasting Legacy, resonating with their deepest values amidst an era of extraordinary change.
What is a Donor Advised Fund (DAF)?
A Donor-Advised Fund is a philanthropic vehicle that allows donors to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund over time. It is like having a charitable investment account where you deposit Money, watch it grow, and then direct its use to support your favorite causes.
The History and Evolution of Donor-Advised Funds
Tracing its roots back to the early 20th century, the DAF has evolved from a niche offering by community foundations to a mainstream philanthropic tool. It gained momentum in the 1990s when commercial financial firms began offering them. Today, DAFs represent a significant portion of charitable giving in the U.S., underscoring their importance in modern philanthropy.
Did you Know? DAFs originated in the early 1930s, but their modern form took shape in the 1990s.
Historical Milestones
- New York Community Trust (1931): One of the earliest examples of a DAF, helping fund critical community services during the Great Depression.
- Fidelity Charitable (1991): Marked the entry of commercial financial services into the DAF space, vastly expanding its accessibility.
- Rapid Growth in the 21st Century: By 2020, DAFs held over $140 billion in assets, a testament to their rising popularity.
The Role of DAFs in Modern Philanthropy
In today’s financial landscape, DAFs are more than just a tool for charitable giving; they are instruments of change. They offer flexibility, allowing donors to respond quickly to emerging needs or to plan for long-term philanthropic strategies. The recent rise in DAF usage highlights their appeal to a broad spectrum of donors, from the modest to the ultra-wealthy. Flexibility in grant-making allows donors to respond quickly to crises, support long-term projects, or drive local initiatives. For tax efficiency, this also offers immediate tax benefits while allowing funds to grow tax-free.
DAFs Appeal Across the Wealth Spectrum
- For the Modest Giver: DAFs offer an accessible entry point into structured philanthropy without the complexities and costs of establishing a private foundation.
- For the Ultra-Wealthy: They provide a way to manage larger philanthropic endeavors with tax benefits and strategic giving opportunities.
Donor-Advised Funds and Legacy Building
A DAF enables individuals not just to give, but to create a narrative of giving that aligns with their personal story. Through a DAF, donors can support multiple causes over time, involve family members in philanthropic decisions, and establish a tradition of giving that can be passed down through generations.
Comparing DAFs with Other Philanthropic Tools
While trusts and private foundations have been the traditional vehicles for substantial philanthropic efforts, DAFs offer a simpler, more cost-effective alternative. Unlike private foundations, DAFs require no minimum payout and offer greater privacy. They stand out for their ease of setup and management, making them accessible to a broader audience.
How to Set Up and Manage a Donor-Advised Fund
Setting up a DAF is straightforward. It involves selecting a sponsoring organization, making an initial contribution, and then advising on the distribution of funds. The key to successful DAF management lies in aligning your philanthropic goals with the right investment strategy and staying engaged with the causes you support.
Open
Establish your giving account.
- To open an account, schedule your first discovery consultation with us. Whether online, in-person, or via phone, we will complete your application and discuss your legacy goals.Â
- Once established, you can fund the account with irrevocable, tax-smart contributions and recommend investments for the assets.
Fund
Fund with a variety of assets.
- Opt for a professionally managed account, allowing you to recommend an investment advisor to manage the account assets actively​​.
- Contributions can include cash, publicly traded securities (like stocks, most mutual fund shares, and bonds), and other non-cash assets (like IPO stock, restricted stock, private business interests, Real Estate, and private equity)
Give
Take support to the next level.
- Identify causes and charities that reflect your personal values and philanthropic aspirations.
- Streamline your giving and maintain flexibility by recommending grants over time.
- Ensure that your generosity is also smart from a tax-efficient perspective, maximizing both the impact and benefits of your contributions.
Advantages of a Prosperity Charitable Account
- It offers same-year tax benefits for itemized deductions.
- The potential elimination of capital gains tax on appreciated non-cash assets and investments held for more than a year.
- The ability to invest account assets for tax-free growth, enhancing your charitable giving potential.
- Flexibility to recommend grants to charities according to your convenience and goals.
- Online management of your giving alongside your Schwab brokerage accounts.
- Opportunity to create a lasting charitable legacy​​.
Closing Thoughts
Donor-Advised Funds represent a unique blend of philanthropy and financial acumen, offering a flexible, impactful, and personal way to build a legacy. As we navigate an ever-changing world, the ability to adapt our giving to meet evolving needs is more important than ever.
If you’re ready to explore how a DAF can be part of your philanthropic journey, we invite you to connect with our expert financial advisors. Together, we can tailor a strategy that reflects your values, maximizes your impact, and forges your legacy.
Check Out Our Top 5 Favorite Local Charities!
A Brighter Day
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Boys & Girls Club of Diablo Valley
This organization offers a nurturing environment for children and teens, fostering their potential through educational and recreational programs. Their work is crucial in shaping the future of our young generation.
Diablo Valley Women In Business Foundation
Empowering women in the business community, this foundation provides resources and support for women’s professional development. Their efforts contribute significantly to gender equality and economic growth.
White Pony Express
Assisting homeless families by providing shelter and support toward self-sufficiency and stable housing. They have expanded their safe parking program, offering showers, food, and a safe place to park at night for families living in their cars​.
Youth Homes
Youth Homes has provided trauma-informed programs for foster youth living in Contra Costa County since 1965. They are fiercely committed to creating opportunities for youth to process and heal from trauma, develop self-sufficiency and confidence, and build supportive networks.
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