A donor advised fund (“DAF”) is a charitable planning vehicle that is established through and administered by a public charity. While the assets contributed to a DAF are legally owned by the public charity, the charity generally administers the contributed assets in accordance with an agreement established between the donor and the public charity. When the donor desires for the public charity to make contributions out of the fund, the public charity makes those distributions from the donor’s fund. DAFs are the fastest-growing charitable planning vehicles in the United States for the following reasons:
1. DAFs can be established through a simple agreement with the public charity, and do not require separate legal incorporation documents.
2. In many cases, DAFs can be created with no initial start-up costs.
3. The donor can take a tax deduction in the year of the gift, even if contributions to the desired charities do not occur until a later tax year.
4. If the donor so desires, the donor can make anonymous gifts through the sponsoring public charity.
5. In many cases, the donor can direct “successor directors” to make distribution decisions following the death or incapacity of the donor.
6. The DAF does not need to file annual tax returns or file corporate documents.
7. The public charity generally makes arrangements for the investment of the assets held in the DAF.
8. For cash gifts to a DAF, the donor is entitled to a tax deduction of up to 50% of adjusted gross income.
9. For appreciated property, the donor is entitled to a tax deduction of up to 30% of adjusted gross income.
10. The DAF is not required to distribute a certain percentage of fund assets every year; instead, distributions can be made as the donor and the donor’s family so direct.