5 Reasons Donor-Advised Funds Benefit Donors and Nonprofits

In the philanthropic sphere, donor-advised funds (DAFs) have clearly gained notable, ongoing popularity in recent years. Since flexibility is at the heart of their appeal to the donor, there are associated benefits that are powerful for charities as well. 

After all, a March 2022 Bank of New York Mellon report, titled “Charitable Giving Study” (opens as a pdf), indicates that 91% of high-net-worth individuals agree that many forms of charitable giving are a part of their wealth plans. 

Donor-advised funds are charitable giving vehicles administered by public charities or financial institutions. They allow donors to make irrevocable contributions of cash, securities or other assets to a fund and receive immediate tax benefits for their donations. Once the contribution is made, the donor can then recommend grants to qualified charitable organizations over time. DAFs also consistently benefit charities, as the flow-through rate for DAFs far exceeds other giving vehicles. 

Here’s a specific look at the four benefits and considerations that generate the popularity surrounding DAFs and the corresponding benefits for nonprofits.

1. Simplicity and Flexibility

Donor-advised funds simplify the process of charitable giving by consolidating contributions into a single account. Donors can contribute to the fund whenever they choose and then recommend grants to multiple charitable organizations over time, offering flexibility in the timing and amount of their donations. It also makes it more likely that more charities will be included

2. Asset Appreciation

Donors can contribute appreciated securities or other assets to a donor-advised fund, bypassing capital gains taxes. This allows donors to maximize their impact by donating assets that have grown significantly in value over time and are able to make an even greater impact for the charities they select.

3. Anonymity

Donor-advised funds offer anonymity for donors who prefer to remain private in their philanthropic endeavors. Since grants are recommended by the donor but made by the fund, the recipient organizations may not know the specific identity of the donor. This widens the pool of potential donors who see a DAF as an easy way to ensure they remain anonymous.

4. Family Philanthropy

Donor-advised funds can be established as a family philanthropic tool, involving multiple generations in charitable giving and potentially increasing the span of time that a charitable organization receives grants. That multi-generational involvement fosters a sense of shared values and provides an opportunity for family members to engage in meaningful discussions about philanthropy.

5. Tax Advantages

One of the primary benefits of donor-advised funds is the immediate tax deduction donors receive when contributing to the fund. This deduction can be particularly advantageous for individuals or families seeking to optimize their charitable giving and tax planning strategies. Additionally, along with the tax benefit, the donor is also now armed with the benefit of time to carefully plan out their giving strategy, ultimately increasing the chances that the involved charities will receive repeated or ongoing grants.

DAFs have become a powerful tool for individuals, families and organizations looking to engage in strategic and impactful charitable giving. The clear result is a greater impact for charitable organizations as well. With their tax advantages, flexibility, and ability to involve multiple generations, donor-advised funds offer a uniquely streamlined approach to giving that can be embraced by all as an appealing conduit for good.

The preceding blog was provided by an individual unaffiliated with NonProfit PRO. The views expressed within do not directly reflect the thoughts or opinions of NonProfit PRO.