With tax reform on the horizon, it may be advantageous to accelerate deductions and create immediate tax benefits. If you are planning on making substantial charitable contributions in the future, but are unsure what tax law changes will be in effect at that time, a donor advised fund may help take some guess work out of the equation.
A donor advised fund (DAF) is a separate account managed by a non-profit that generates a tax deduction every time you contribute assets into the fund. At some point in the future, you then recommend how you want your fund’s assets to be granted to various qualifying charities. For example, if you deposit $30,000 of cash into your donor advised fund on December 31, 2017, you would be able to deduct the $30,000 as a charitable contribution on your 2017 tax return (assuming you itemize deductions and pending any income limits). In 2018, you decide to pay out $20,000 of these funds to 4 different charities. You will not get a tax deduction when the funds get distributed in 2018, as you already took the full deduction in 2017.
DAFs are quite flexible, as they allow you to fund your account any time throughout the year and there are no minimum annual distribution requirements. Once assets are in the fund, they may be invested, potentially creating tax-free growth inside the DAF and increasing the funds available to donate to other charities in the future.
Besides cash, most DAFs will accept publicly traded securities, real estate, privately held C-corp and S-corp stock, mutual fund shares, and cash equivalents among other assets. It is important to know what your donor advised fund and the qualifying charities you want to make grants to will accept, as contributions to your DAF are irrevocable.
If you are planning on making charitable contributions in the future, please contact your SVA advisor to see if a donor advised fund is right for you.