Donor Advised Funds

A Donor Advised Fund (DAF) can be an easy and cost-effective way to support your favorite charities, such as Lake Forest Open Lands Association. DAFs are an increasingly popular charitable vehicle that offer many of the advantages of a private foundation without the costs and complexities.

How does it work?
  • Establish your DAF by making an irrevocable, tax-deductible donation to a “public charity” that sponsors a DAF program,such as a community foundation or other sponsoring institution or organization.
  • Recommend distributions to qualified charities of your choice.
What are the main advantages of a donor-advised fund?
  • Simplicity – The DAF sponsor handles all record-keeping, disbursements and tax receipts.
  • Flexibility – Timing of your tax deduction can be separate from your charitable decision making.
  • Tax-efficiency – Contributions are tax-deductible and any investment growth in the DAF is tax-free. It is also easy to donate long term appreciated securities, eliminating capital gains tax and allowing you to support multiple charities from one block of stock. The tax deductions can equal up to 50% of your adjusted gross income (AGI) for gifts of cash and up to 30% of AGI for gifts of appreciated securities, mutual funds, real estate and other assets. There is a five year carry-forward deduction on gifts that exceed AGI limits.
  • Family legacy – A DAF can be a powerful way to build or continue a tradition of family philanthropy.
  • Privacy if desired – Donors may choose to remain anonymous to the eventual charitable recipient.
Case Study
 

Jim and Julia want to better organize and focus their giving in their community while involving their three children. Using appreciated securities, they establish a $25,000 DAF fund named the Johnson Family Fund with a community foundation or through a financial services firm such as Fidelity/Schwab/Vanguard with affiliated nonprofit DAF entities. The couple receives a federal income tax charitable deduction for the amount of the gift and bypasses any capital gains tax they would owe on the appreciated securities if they sold them outright. They also get all the time they need to decide which charities to support. The Johnsons hold a family meeting to discuss nonprofit organizations which are important to them and decide to recommend gifts to Lake Forest Open Lands Association and a local animal shelter. The DAF presents the two charities with checks from the Johnson Family Fund. Jim, Julia and their children are pleased to begin a personal legacy of giving.

How to fund a DAF
 

Create a donor-advised fund with one of the following assets:

  • Cash
  • Appreciated securities
  • Other appropriate assets*

*Check with the DAF sponsor

 

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