Estate Planning
What are Donor Advised Funds?
A donor advised fund (DAF) is a charitable giving vehicle that allows individuals to make a donation to a public charity and then recommend grants from the fund to other charities over time. It's like a charitable savings account that allows you to make tax-deductible contributions and then distribute the funds to charities of your choice. You can make a single large donation or smaller contributions over time, and the fund grows tax-free. When you recommend a grant, the sponsoring organization makes the actual donation to the charity.
Benefits of Donor Advised Funds for Seniors
DAFs offer several benefits for seniors, including:
- Tax advantages: You can claim a tax deduction for your donation to the DAF in the year you make it, even if you don't distribute the funds to charities until later. This can be particularly beneficial for seniors who are in a higher tax bracket.
- Flexibility: You can choose to distribute the funds to charities over time, allowing you to support causes that are important to you. You can also make grants to a variety of charities, including local, national, and international organizations.
- Simplicity: DAFs are relatively easy to set up and manage. You can work with a financial advisor or a sponsoring organization to create a DAF and make grant recommendations.
- Estate planning: DAFs can be a valuable tool for estate planning. You can leave a DAF to your heirs, who can then continue to make grants to charities in your name.
How to Set Up a Donor Advised Fund
Setting up a DAF is relatively straightforward. You can work with a sponsoring organization, such as a community foundation or a national charity, to establish a DAF. You'll need to make an initial donation to the fund, and you can then recommend grants to charities over time. The sponsoring organization will handle the administrative details of the fund, including making the actual donations to the charities.
Choosing a Sponsoring Organization
When choosing a sponsoring organization for your DAF, consider factors such as:
- Fees: Some sponsoring organizations charge annual fees, while others do not. Be sure to compare fees before making a decision.
- Grant-making process: Some sponsoring organizations have more restrictive grant-making policies than others. Consider how much flexibility you need in choosing charities.
- Reputation: Choose a sponsoring organization with a strong reputation for financial stability and ethical practices.
Making Grant Recommendations
Once you've set up a DAF, you can recommend grants to charities. You can make grants to any qualified charitable organization, including local, national, and international charities. You can also make grants to support a variety of causes, such as education, healthcare, the arts, and environmental protection.
Managing Your Donor Advised Fund
You can manage your DAF online or by phone. You can track your contributions, grant recommendations, and the growth of your fund. You can also make changes to your grant recommendations at any time.
Summary
Donor advised funds can be a valuable tool for seniors who want to make a difference in the world. They offer tax advantages, flexibility, simplicity, and estate planning benefits. If you're interested in learning more about DAFs, talk to a financial advisor or a sponsoring organization.