How a Donor-Advised Fund (DAF) Can Help You Make a Greater Charitable Giving Impact

Often when we think of philanthropy – or of someone who is philanthropic – an image of a highly wealthy individual, a blue-ribbon family or an international corporation immediately comes to mind. When we think about our personal role as donors and our ability to be engaged in meaningful acts of giving, we probably don’t fit the image we have nurtured over the years of a generous donor profile.

The reality is that any of us can embrace a life of philanthropy without being included on the exclusive list of the “world’s richest people.”  

But how can anyone who is not on the Forbes Billionaires list afford to give generously to the charities of his or her choice? What can those of us with limited funds do to contribute to solving some of society’s overwhelming issues, like food insecurity, homelessness, or access to education?  This is where opening a Donor-Advised Fund (DAF) can be a helpful resource as you seek opportunities to support nonprofits that focus on achieving social good and improving the welfare of others.

How Does a DAF Work?

“Think of a Donor Advised Fund (DAF) as similar to a checking account for philanthropic giving,” explains Danielle Kelly, CFA, Vice-President, Charitable Planning Consultant, FIDELITY Charitable. “You can make contributions into your DAF similar to how you would for a normal checking account. The main difference is that you must select a 501(c)(3) public charity as a recipient for every dollar you put into the DAF. From the moment you contribute to Fidelity Charitable, it is immediately recognized as a charitable donation – even before it is distributed to a charity of your choice. You then make recommendations on where to apply the donation. And you can be comfortable that your money can potentially grow tax-free while in the DAF and it has the potential to grow significantly while you decide how to distribute the funds.”

By making a variety of donations to several different organizations over time, as an ‘average’ donor you will have a positive impact on the nonprofit community. The convenience of this arrangement is that you can put money into an account with the specific intention of giving it away – even if you have not decided yet which organizations are your choice to receive your financial support.

For example, perhaps you were considering a donation to your local church, but in the interim between making a deposit to your DAF and directing its use, tornadoes ripped through your hometown causing serious devastation. Instead of earmarking the funds as you originally had considered for a religious organization, you may now decide to direct those funds to a more timely and relevant support group to help in the rebuilding activities after the storm’s destruction. You have the freedom to recommend where and how to distribute the funds you’ve been stockpiling in your DAF.

Flexibility is Key, Especially for Smaller Donors.

Because you have the option of recommending how to deploy the funds at any time, you can leverage your influence for the greatest result.

Additionally, whether you contribute cash, securities or other assets, you are generally eligible to claim an immediate tax deduction without waiting for the funds to be sent to the charities you select. That is because the funds are recognized as a donation as soon as they are contributed, rather than after they are invested in the nonprofit community.

Because you can open a DAF with no minimum initial contribution – and you don’t have to maintain a minimum balance – you can start supporting the charities of your choice immediately.

Remember: it isn’t only the world’s wealthiest who can make a real difference in the lives of those most in need. In fact, you, too, can exercise your own philanthropic goals when you establish a DAF.

For more information on charitable giving to Think Big, email leigh.harting@thinkbigforkids.org