The National Philanthropic Trust (NPT) reports a record-breaking rise in donor-advised funds for charitable giving. Charities received more than $19 billion from these funds last year, which have grown in popularity due to the new tax laws.
Donor-advised funds (DAFs) are “a little like a personal charitable savings account,” explains The Chronicle of Philanthropy. Rebecca Moffett of Vanguard Charitable adds that “a donor-advised fund is a giving tool that charitable individuals use to tax-effectively consolidate, accrue, and grant assets to public charities. You can think of it as an investment account dedicated solely to your charitable giving.”
The funds are managed by 501(c)3s that act as sponsoring organizations. These sponsoring organizations can be huge “mega funds” like Vanguard Charitable or the Fidelity Charitable Gift Fund. Sponsoring organizations can also be community foundations like the San Antonio Area Foundation or single-issue organizations like university alumni associations.
According to the NPT, the number of individual donor-advised funds grew an astounding 60.2 percent from 2016 to 2017 while charitable assets increased by 27.3 percent. Approximately 60 percent of the assets within these funds aren’t cash based. Instead, they include closely held stock, real estate and personal property like jewelry and artwork. Emerging models for using DAFs including crowdfunding and workplace giving are increasing the ways individuals and charitable sponsors use this flexible giving vehicle, says Eileen R. Heisman, NPT President and CEO.
DAFs have suddenly grown in popularity because the new Tax Cuts and Jobs Act of 2017 (TCJA) changes the way most taxpayers will be able to deduct charitable donations. Bunching donations into DAFs can help push some taxpayers over the now-doubled standard deduction threshold of $24,000 for married couples into increased deductions based on adjusted gross income (AGI). They can be great tools for those who need to offset capital gains in certain years (which usually happens due to inheritance, the selling of a business, or particularly strong market returns). And, at the same time, the funds can grow tax-free while you distribute them over time. As one Forbes contributor mentions, “if you give a donor-advised fund appreciated stock or another investment that turned a profit for you, its capital gains will escape taxation.”
DAFs currently hold other benefits over foundation contributions (although legislators would like to remedy that). Grantspace points out that, unlike private foundations, DAFs do not have minimum payout requirements and the funds can be relatively anonymous. Opening a DAF is also less expensive and requires less administrative overhead than establishing a private foundation.
For those who give significant amounts to charitable organizations, the mounting trend of DAFs may be worth considering. Feel free to contact us to ask about how a donor-advised fund may help you protect your charitable dollars from unnecessary taxes.