29 May 2012

Donor Advised Funds (DAFs) make charitable giving simple for everyone. What is a DAF? A DAF is a cost effective charitable vehicle that allows a donor to make charitable gifts to multiple charities over a period of time with little administrative responsibility while reaping the benefit of maximum charitable income tax deductions. A DAF is a fund that is created and maintained by a public charity. The public charity provides the charitable income tax exemption for the DAF and it handles all of the administrative paperwork associated with maintaining the DAF’s charitable tax exempt status. A DAF is an inexpensive alternative to creating and administering a private family foundation. In Los Angeles, the California Community Foundation and the Jewish Community Foundation are two notable charitable organizations that sponsor DAFs.

When a donor transfers funds to a DAF, the sponsoring charity has legal control over the funds. However, the donor, or the donor’s designated agent or agents, retains advisory control over how the funds are invested and how the funds are distributed. Unlike a private foundation, a DAF does not legally have to distribute a certain percentage of its funds each year to charitable beneficiaries. So, a donor may make a contribution in year 1 to a DAF and take the charitable income tax deduction in that year, but delay making distributions to charities from the DAF until a future date.

A donor will be entitled to a federal income tax deduction of up to 50% of the donor’s adjusted gross income for cash contributions to the DAF and a federal income tax deduction of up to 30% of the donor’s adjusted gross income for a contribution of appreciated securities to the DAF. Furthermore, a donor can avoid capital gains taxes and receive an immediate, fair market value income tax deduction for contributions of appreciated assets, such real estate or limited partnership interests, to a DAF. In contrast, the maximum available charitable income tax deductions are smaller for contributions made to a private foundation.

The donor may establish a family legacy by naming its DAF after his or her family and by extending the advisory rights over the assets in the family’s DAF to future generations so that the family DAF continues beyond the life of the donor. This allows the donor to impart his or her charitable values to his or her children so that the family will have a positive charitable presence in the community. Charitable gifts made from the family DAF may be made public or they may be made on an anonymous basis, an option that is not available to a private foundation. All gifts made from a private foundation are subject to public disclosure.

Establishing a DAF is an easy way to meet your charitable goals and to involve your family in a lifetime of giving.

If you would like to discuss this or other trusts and estates issues, please contact the attorneys at Drucker Law Offices, 468 North Camden Drive, 2nd Floor, Beverly Hills, CA 90210, 310.285.5375 Tel, 310.444.9754 Fax, www.druckerlaw.com

Print Friendly