What is a Donor Advised Fund?

July 17, 2019Giving Strategies

A simple, flexible and tax-efficient way to give to your favorite charities.

A donor advised fund is like a charitable investment account that you open for the sole purpose of supporting charitable organizations you care about. When you contribute cash, securities or other assets to a donor-advised fund at a public charity, like Blue Grass Community Foundation, you are generally eligible to take an immediate tax deduction. Then, you can recommend grants to virtually any IRS-qualified public charity.

When you give, you want your charitable donations to be as effective as possible. Donor advised funds are the fastest-growing charitable giving vehicle in the United States because they are one of the easiest and most tax-advantageous ways to give to charity. Let’s take an in-depth look at how a donor-advised fund works.

Make a tax-deductible donation

Donate cash, real estate, stocks or non-publicly traded assets such as private business interests, and private company stock to be eligible for an immediate tax deduction. A contribution to a donor advised fund is an irrevocable commitment to charity; the funds cannot be returned to the donor or any other individual or used for any purpose other than grantmaking to charities. See what you can donate

Grow your donation, tax-free

While you’re deciding which charities to support, your donation can potentially grow, making available even more money for charities. We offer a variety of investment options from which you can recommend an investment strategy for your charitable dollars. Investment options

Support charities you love, now or over time

You can support virtually any IRS-qualified public charity with grant recommendations from your donor advised fund-from your local animal shelter to your alma mater or religious institution. We will conduct due diligence to ensure the funds granted go to an IRS-qualified public charity and will be used for charitable purposes.
Charities you can support [link to KY nonprofit directory]

A smarter way to give

What if you could support all your favorite charities with just one donation? That’s the power of a donor advised fund.

What are the benefits of a donor-advised fund?

  • Easily contribute a wide range of assets
    Giving non-cash assets is often more efficient than giving via cash or credit cards, but it is difficult for many charities to accept these donations. Contributing assets other than cash is simple with a donor advised fund. In some cases, it’s possible to transfer stock directly from your brokerage account with the click of a button. See what you can donate. [link to assets]
  • Maximize potential tax benefits
    As soon as you make a donation, you are eligible for an immediate tax deduction, just as you would by donating to another public charity, like your local homeless shelter or food pantry. But some donations could make you eligible for additional benefits.
  • Cash donations
    If you donate cash, via check or wire transfer, you’re generally eligible for an income tax deduction of up to 60 percent of your adjusted gross income.
  • Donations of long-term appreciated assets
    Donating long-term appreciated securities directly to charity, instead of liquidating the asset and donating the proceeds, can help maximize both your tax benefit and the overall amount you have to grant to charity. These donations provide two tax benefits:

    • Become eligible for an income tax deduction of the full fair-market value of the asset, up to 30 percent of your adjusted gross income.
    • Eliminate capital gains tax on long-term appreciated assets, as long as they’ve been held for more than a year.
  • Invest your donation for tax-free growth
    Once you have funded your donor advised fund, you may recommend an investment strategy for your account-potentially growing your account and providing you with more dollars to grant to charity. We also allow you to nominate your financial advisor to manage the investment of your charitable funds.
  • Simplify recordkeeping and organization
    With a donor advised fund, you don’t have to keep track of every gift acknowledgment from every charity you support-just the receipts from your donor advised fund contributions. When you’re ready to support your favorite charity, you can simply log in to your account and recommend a grant to any IRS-qualified public charity.
  • Support your legacy planning
    Donor advised funds can be a valuable tool for estate planning. You can incorporate your donor advised fund into estate planning by making a bequest in your will [link to legacy planning] to Blue Grass Community Foundation or by making your fund a beneficiary of a retirement plan, life insurance policy or charitable trust. By leaving instructions with us, you can support multiple charities with one bequest. These gifts can also help reduce or eliminate the burden of estate tax for your heirs.

How can I use my donor advised fund to support charities?

With a donor advised fund, you generally CAN:

  • Support IRS-qualified public charities with grant recommendations from your donor advised fund. We will conduct due diligence to ensure the funds granted go to an IRS-qualified public charity and will be used for charitable purposes.
  • Choose whether to recommend anonymous grants to charity or to provide grant acknowledgment contact information with their grant recommendations. While donors choose to provide their names and addresses on nearly 90 percent of grants recommended through us, donor advised funds offer the option for anonymous granting for those who wish to recommend grants privately.
  • Specify a specific use, campaign or purpose for your grant recommendation. While you cannot fulfill legally binding pledges with a donor advised fund, you are able to attach a special purpose to your grants, which the sponsoring organization will relay to the charity. Similarly, you may make grant recommendations “in honor of” or “in memory of” a loved one.

TIP: Though a donor advised fund is not a foundation or a trust, many donors choose to grant from their donor advised fund as they would from a family or private foundation. Because of this, some elect to use this language in naming their donor advised fund. Examples: The Smith Family Charitable Foundation, The Smith Giving Trust

With a donor advised fund, you generally CANNOT:

  • Support organizations other than IRS-qualified, 501(c)(3) organizations, such as political groups or crowdfunding campaigns. Private foundations are also ineligible to receive donor advised fund grants.
  • Recommend grants that may provide a personal benefit-such as school tuition for a grandchild or tickets to a charity event that you will attend. Because you would receive something of personal value from these grants, they are not eligible, just like they would not be eligible for a tax deduction. Donor advised fund dollars are to be strictly used for charitable purposes.

How is a donor advised fund different from a private foundation?

Private foundations and donor advised funds are both charitable giving vehicles that help donors facilitate their giving and achieve their philanthropic goals. Unlike donor advised funds, private foundations are separate legal entities, generally established by an individual, family or corporation. Private foundations are subject to more stringent tax laws and regulations than public charities and are responsible for their own tax filing and recordkeeping.

Benefits of a private foundation include greater administrative control over assets and grantmaking, including the ability to make grants to organizations other than IRS-qualified, 501(c)(3) public charities. With different structures, rules and features, donor advised funds and private foundations each come with a unique set of advantages and limitations. Learn more about the differences between donor advised funds and private foundations.

How Blue Grass Community Foundation can help

Since 1967, we have been helping donors like you support their favorite charities in smarter ways. We can help you explore the different charitable vehicles available and explain how you can complement and maximize your current giving strategy with a donor advised fund, or other tools. Join the hundreds of fundholders and donors who choose Blue Grass Community Foundation to make their giving simple and more effective and start your fund today.