5 Reasons to use a DAF for Tax Effective Giving
Are your clients interested in simplifying their charitable giving? Are your clients giving in the most tax efficient way? A donor-advised fund (‘DAF’) may be right for your clients.
Donor-advised funds are like charitable savings accounts and are easy to set-up and operate.
- Opens and names the DAF account (you may name it a 'Foundation' or 'Charitable Trust')
- Donates assets (cash, shares or other assets)
- Receives tax recognition for a donation when given to the DAF account
- Can make additional donations at any time.
- Recommends investments to grow the balance in the DAF account
- Recommends grants from the DAF account to support any qualified charity.
DAFs are now the fastest growing charitable giving vehicle in philanthropy. The benefits of using a DAF include:
You no longer need to track receipts from multiple charities. You get the charitable tax relief when you make a contribution to your DAF account and can then support various charities from the DAF account. All of your giving can be managed centrally. You also have the confidence that the charities you support have been vetted by the DAF provider.
2. Donating shares and other types of assets
Charities are not always able to accept assets other than cash. With a DAF, you may donate other types of assets. The smartest donations often aren’t cash. For example, if you have appreciated shares in your portfolio, you may donate the shares to your DAF account, eliminate the capital gains tax liability and write off the market value of the shares on your income tax return.
3. Immediate tax benefit, payout flexibility
For many, the idea of ring-fencing an amount of capital for future giving is appealing. The pressure of deciding which charities to support can be overwhelming when you receive a large bonus, inheritance, or go through a liquidity event. With a DAF, you may contribute assets to your DAF account when it makes the most sense from a tax planning perspective and then decide later which charities to support in your own time.
4. Discretion and privacy
When you recommend grants from your DAF account to a charity, you may choose whether you wish to be identified or remain anonymous.
5. Providing a legacy
Many donors use DAFs to engage their children and family to discuss charitable giving as a family. You may list your DAF account as a legacy bequest in your will and you may name the successor advisors on your DAF account for the next generation.
Dual US/UK taxpayers should consider using a US/UK ‘dual qualified’ DAF. A dual qualified DAF is recognised as a charity by both US and UK tax authorities simultaneously. For US/UK dual taxpayers, donations to a US 501(c)(3) can be written off of US taxes (but not UK taxes) and donations to UK charities can be written off of UK taxes (but not US taxes), a dual qualified DAF allows donors to receive tax credit for their contributions in both the US and UK.
National Philanthropic Trust UK is a provider of US/UK ‘dual qualified’ donor-advised funds. NPT-UK is affiliated with National Philanthropic Trust, the largest independent national provider of donor-advised funds in the United States.