Five Reasons Donors Choose Donor Advised Funds

People tend to use DAFs as giving tools for a variety of reasons, like timing it with a taxable event or donating a non-cash asset. Here are five common reasons why a donor may want to choose a DAF for their charitable giving.

1. Taxable Event

A taxable event could be receiving an inheritance, selling a business or a one-time bonus. It’s an inconsistent or unexpected event that may cause a significant increase in a donor’s income.

When a donor contributes money to their DAF they are eligible for a tax deduction the year they make that gift. People will often place money into a DAF to maximize their tax and charitable impact following these taxable events. This is beneficial to donors who may not want to make their charitable gifts all at once, but want to distribute them over time.

“If your donor is relying on those episodic opportunities to fund their philanthropy, a donor advised fund is a great way to do that, because they can put money in when it makes sense from a tax perspective and grant out at whatever cadence,” said Senior Vice President of Philanthropic Services Jeremy Wells.

2. Time to Consider

When a significant event such as a one-time bonus or an inheritance occurs, a donor may also need time to make important decisions. If they receive that bonus on December 27, they may not know how or what they want to give by December 31 to ensure their gift is accounted for before the end of the year.

A DAF provides them with time to think about how and where they want to recommend their grants, whether that’s January of the upcoming year or three years from now.

3. Streamlined Giving

A DAF can also be a great way for a donor to streamline their giving.

Your biggest supporters likely donate to many causes throughout the year. A DAF is an easy way for donors to track their gifts and repeat gifts in the future. With a DAF, donors will receive a one-time tax receipt for the gift into the fund rather than tracking down receipts from all of their grants throughout the year.

“For all of those organizations that they’ve supported, it's just that one receipt,” said Philanthropic Advisor Heidi Tieszen. “They can see what they did the prior year and tweak as they want. A DAF really makes their giving much more efficient.”

4. Family or Corporate Philanthropy

For families or corporations that want to give without the administrative burden of starting their own foundation or are interested in focusing more time on grantmaking, a DAF can also serve as a great tool.

If they currently have a private foundation, it can be converted to a DAF, as it is often a lower-cost option that can provide additional tax benefits.

5. Non-cash Assets

With a DAF, donors can make donations in a variety of ways, be it cash, stock or other non-cash assets. While cash is still one of the primary ways people give, it only accounts for approximately 7% of household wealth in the U.S. Non-cash assets can provide donors with a way to make larger gifts than they could if they relied on cash alone.

Giving these assets through a DAF takes the burden of processing these more complex gifts off of nonprofits. By establishing a DAF with the Foundation, your donor can liquidate their assets to potentially provide your organization with more financial support. You may want to talk to your donors about donating assets such as farm assets, real estate, privately held stock and more.