Donor-Advised Funds: A Viable Alternative to Family Foundations

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Donor-Advised Funds: A Viable Alternative to Family Foundations

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Charitable donations are a great way for families to give back to the community while lowering their tax liabilities.

A particularly useful philanthropic instrument is the Donor-Advised Fund (DAF). A DAF is a philanthropic vehicle that allows donors to make charitable contributions and receive immediate tax benefits – as opposed going through all the aggravation and expense of having a family foundation. According to Wikipedia:

To participate in a donor-advised fund, a donating individual or organization opens an account in the fund and deposits cash, securities, or other financial instruments. They surrender ownership of anything they put in the fund, but retain control over how their account is invested, and how it distributes money to charities.

In addition to the immediate tax benefits, a DAF is versatile in the kinds of donations it can accept, which include:

  • Cash donations
  • Securities
  • Jewelry
  • Artwork
  • Bereavement gifts that were made instead of flowers

One important limitation of DAFs is that disbursement can only be made to 501(c)(3) designated charities. It is also possible, but unlikely, that the DAF may refuse to honor the wishes of the donor.

But with the overhead costs of family foundations reaching upwards of 4% of their endowments, DAFs are becoming more and more attractive to high net worth families who:

  • Have selected a favorite 501(c)(3) target charity
  • Wish to make charitable contributions that can be deducted for the current year
  • Have no taste or inclination for chasing after charities for proof of donations

Have questions about how a Donor-Advised Fund can work for you and your family? Contact me today!

Judith Heft, Principal, Judith Heft & Associates is a personal financial concierge with offices in Greenwich and Stamford. She can be contacted via email at judy@judithheft.com or by phone 203-978-1858.

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