If you are seeking a flexible, efficient way to incorporate charitable giving into your financial plan, Donor Advised Funds (DAFs) offer unique advantages over traditional foundations and other tax-advantaged options. With increasing accessibility, tax benefits, and the ability to integrate family legacy goals, DAFs are an ideal vehicle for anyone who wants to simplify philanthropy without compromising impact. If you are interested in maximizing your giving, there are a few key things to know about DAFs.
In the simplest terms, a DAF is a specific charitable giving account offered by many investment firms, such as Charles Schwab, Fidelity, or Vanguard. With contributions of cash, securities, or appreciated assets, individuals or families can fund the account, earn an immediate tax deduction, and allocate grants to charities over time. Unlike foundations, which require ongoing administration and regulatory filings, DAFs are managed by financial institutions, allowing donors to focus on their giving goals rather than administrative tasks. The added benefits include tax strategy, investment flexibility, legacy planning and privacy.
Tax Considerations and Multi-Year Planning
The 2017 Tax Cuts and Jobs Act (TCJA) increased the standard deduction, making itemizing less common for many filers. For anyone whose annual charitable contributions do not exceed the standard deduction, a DAF offers an ideal solution. By accumulating multiple years’ worth of donations into a single year, a strategy often referred to as “bunching,” donors can surpass the deduction threshold and maximize tax savings.
DAFs also simplify tax planning for individuals with large capital gains. Donating long-term held appreciated assets like stocks directly to a DAF eliminates capital gains tax, allowing the full value of the assets to benefit the charity.
Planning for anticipated tax policy changes is also essential. Advisors at Fairman Financial can guide you in maximizing the benefit of any DAF contribution you may be considering.
Why DAFs May Be the Best Fit for You
DAFs offer a versatile, accessible giving vehicle for clients at various stages of wealth accumulation and philanthropic interest. With minimum contributions as low as $50 to $100, DAFs are a viable choice for many, allowing investors to avoid the complexities of a foundation while still supporting a broad range of charitable goals. When donors choose a DAF, they have the flexibility to adjust their giving to match life events. This is one of the reasons high-net-worth and affluent individuals might prefer DAFs for charitable giving.
A Seamless Way to Leave a Lasting Legacy
DAFs offer a straightforward approach to legacy planning by providing easy adjustments to beneficiary designations. Unlike wills, where changing charitable designations may require legal assistance, modifying DAF beneficiary instructions is typically as simple as updating a form. Donors can leave the charitable funds to heirs to manage, leave them directly to one or more specific charities, or use a combination of these strategies. This flexibility benefits clients who have a sustained commitment to certain organizations but may want to adjust allocations over time.
For investors considering philanthropy as part of their financial legacy, the DAF structure ensures that their assets are managed efficiently and in alignment with family values. Whether the goal is to involve children in charitable giving or leave a substantial gift to charitable organizations, DAFs allow donors to shape their legacy with minimal administrative burden.
Donor Advised Funds in Action
For those interested in philanthropy, estate planning, or tax-advantaged giving, a DAF provides a uniquely tailored solution. Whether you’re planning for annual giving, preparing for a high-income year, or seeking to educate the next generation on philanthropy, DAFs offer an accessible, flexible, and impactful path to achieving your charitable goals. Reviewing your charitable goals with a knowledgeable financial advisor can help you decide if integrating a DAF into your financial plan is beneficial. Most importantly, an advisor can support a long-term plan that has a lasting impact, aligning with your philanthropic vision and larger financial plan.
About Fairman Financial
Fairman Financial is a fee-only financial planning firm located in Chesterbrook, PA, offering wealth management, investment advisory, tax and personal accounting services to individuals and families. Investment advisory services are provided by The Fairman Group LLC, an independent investment advisor registered with the Securities and Exchange Commission.
