A donor advised fund (DAF) is a charitable vehicle that affords donors the best tax deductibility possible when dedicating assets to charitable purposes. After dedicating assets to charitable purposes and receiving a tax deduction for doing so, a donor may recommend support for specific charitable causes from the donated/dedicated assets in the future. While the assets dedicated to charity await being sent to specific charitable causes, they can be invested and grow in a tax-free environment.
More technically, a DAF is a fund or account within a public charity (1) separately identified by reference to contributions of a particular donor or donors, (2) owned and controlled by the public charity (called the sponsoring organization), (3) with respect to which a donor or any person appointed or designated by such donor has the privilege of advising the sponsoring organization with regard to the distribution or investment of amounts held in such fund or account.
A donor gets to make a gift to a charity, such as Lucia Charitable, and immediately take a tax deduction for the gift. The sponsoring organization charity then invests the gift in a special account tied to that donor, this is a DAF. The funds in the special DAF account can grow tax free and the donor or their designee have the privilege of recommending that the charity give gifts from the account to other charities/charitable causes.
Creating a DAF at Lucia Charitable is easy and straightforward. You and Lucia Charitable make an agreement, a Donor Advised Fund Agreement, whereby you can name the new DAF, designate who you would like to have the privilege of advising Lucia Charitable with regard to donations/distributions from the DAF, etc. Once this is done, Lucia Charitable will establish an investment account in the name of the new DAF, and your donation to fund the DAF account will be received into and administered within this account for the life of the DAF. You and your designees will have the ability to monitor account activity and investment performance on an ongoing basis. In the event you decide to fund the new DAF with non-financial assets, such as real estate, Lucia Charitable will sell the donated real estate and then use the proceeds to fund the account.
DAFs may be funded with donations of publicly traded stocks and bonds, closely held business interests, real estate, or other assets.
As a DAF donor, you receive the maximum charitable income tax benefits available. Generally, donations into a DAF will be deductible immediately at full market value. Cash donations to a DAF are deductible each year to the extent the donor’s donations do not exceed 60% of their AGI. Donations of publicly traded securities and long-term gain non-cash assets like real estate or privately held business interests are deductible each year to the extent they do not exceed 30% of the donor’s AGI. Deductibility of contributions into a DAF compares very favorably to contributions made into private foundations:
DAFs | Private Foundations | |
Cash Contribution Deduction Limits | 60% of AGI | 30% of AGI |
Gifts of Stock or Real Property Deduction Limits | 30% of AGI | 20% of AGI |
Valuation of Donations | Fair Market Value | Fair market value for publicly traded securities, but only cost basis for all other gifts! |
You or your designee(s) may recommend distributions/donations from the DAF at any time. The Lucia Charitable team will then review and process each recommendation. Distributions to organizations recognized as charities by the IRS are routine and easy. Distributions to other organizations for charitable purposes are possible, but they require additional review and oversight. DAF distributions cannot be used to fulfill pledges, support political campaigns, or benefit specific individuals.
Unlike with private foundations, there are no requirements that a certain amount be distributed from a DAF in any given year. The rate at which distributions are made is up to you—no rush to distribute a certain amount by the end of a tax year as can be the case with private foundations. You get to recommend donations on your own schedule and focus solely on making the best stewardship decisions possible.
If desired, we are pleased to assist in locating charitable causes that might fit your interests and objectives. And we also welcome opportunities to facilitate cooperation amongst DAFs at Lucia Charitable towards common goals and projects.
Donations from a DAF may be made with different degrees of anonymity or none at all. For example, it is possible for a gift to be made from your DAF to a charity such that your DAF remains unknown to both the public and the charity receiving the gift. If this is desired, the gift can be sent from Lucia Charitable generally with an indication that it is made from an anonymous DAF at Lucia Charitable.
If you would like your DAF to remain anonymous for public recognition purposes but would still enjoy your DAF being known to the receiving organization such that you might directly keep in touch with them to some extent, that is also possible.
On every donation you recommend from a Lucia Charitable DAF you have the option to say whether you would like no anonymity, public anonymity, or total anonymity.
A DAF gives you freedom in managing your charity.
There is no charge to create a DAF with Lucia Charitable. Lucia Charitable charges an annual fee of 0.5% to cover our administrative expenses. Normally there are no additional charges for investment management or donation processing. Generally, DAFs are much more cost effective than private foundations—and DAFs at Lucia Charitable are refreshingly cost effective even amongst most DAFs, especially considering our personalized and mission driven added value.
Creating a DAF and creating a private foundation both involve donations that legally take assets out of the hands of a donor and place them in the hands of a charitable entity. The chart below highlights some differences between DAFs, specifically at Lucia Charitable, and Private Foundations generally:
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DAFs at Lucia Charitable
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Private Foundations |
Start-Up Costs
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None |
Potentially thousands of dollars in legal, accounting, and various filing fees! |
Ongoing Administration Fees and Expenses
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A straightforward annual fee of only 0.5% |
Ongoing legal, accounting, investment management, and other administrative fees. Typically much higher than 0.5% annually.
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Annual Tax Filings |
None. A DAF does not have to file tax returns.
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Federal and state returns. Every. Year. |
Deductibility of Contributions
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Cash: 60% of AGI Other Property: 30% of AGI
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Cash: 30% of AGI Other Property: 20% of AGI |
Valuation of Gifts Made to Fund the DAF/Foundation
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Fair Market Value. On everything! |
Fair market value for publicly traded securities, but only your cost basis for all other gifts!
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Ongoing Tax Liabilities
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The assets in a properly administered DAF are free to grow completely tax free!
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Private Foundations are subject to a 1.39% tax on investment income.
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Ongoing Administrative Responsibilities of the Donor/Donation Decision Makers
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Make thoughtful recommendations. On your own schedule. |
Ensure government required minimum annual distribution targets are met, oversee asset management, prepare and file tax returns, maintain business records, etc.
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Privacy
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Charitable from a DAF with Lucia Charitable can be made anonymously. Complete privacy regarding the identify of fund advisers, fund balances. |
No opportunity to give anonymously. Private Foundations must publicly disclose significant information regarding distributions made, leadership, assets, etc. |
If you already have or are involved with a private foundation, we would be happy to work with you to explore converting an existing private foundation to a DAF. There are also ways for a private foundation and a DAF to work together—a private foundation can have its own DAF and use it for donation management, etc. For more information on what to do with an existing private foundation, please check out the Options for Private Foundations section of our website.
Distributions from a DAF cannot be made to fulfill binding personal pledges made to a charity, to pay school tuition fees, to pay personal membership dues, to support political campaigns, or to purchase tickets to charity galas or other fundraising events. Distributions from a DAF cannot be made directly to an individual.
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