If you have ever considered donating some or all of your assets to charity, you may have come across the term “donor-advised fund.” At WaterStone, we refer to our Donor Advised Funds as “Giving Funds.”
Think of a Giving Fund as a type of charitable bank account that you can use to gift money over time to the charities of your choice. When you donate your asset(s) to WaterStone, we will liquidate the asset(s) and work with you to invest these funds into your Giving Fund. Then, you can send out grants over a period of time to one or multiple of your preferred 501(c)(3) charities. WaterStone Giving Funds can accept gifts of cash and securities in addition to appreciated assets such as: Real Estate, Business Interests, Oil & Gas, or Agricultural Commodities. At WaterStone, we believe it is essential to understand how your money and/or assets can be used to leverage a maximum Kingdom impact.
Because WaterStone is a public 501(c)(3) entity, donors receive the maximum charitable tax deduction while avoiding capital gains and excise taxes and other restrictions imposed on private foundations.
In agreement with the Pension Protection Act of 2006, which implemented new requirements for donor-advised funds, the WaterStone Board of Directors adopted the following definition of Giving Funds:
“A Giving Fund is established by a Giver with expected advisory rights over the distribution and/or the Investment of the fund. Distributions are usually made to other 501(c)(3) non-profit organizations or to foreign non-profit entities with the Board of Directors exercise of expenditure responsibility”
Most foundations that offer donor-advised funds create grants from these funds to other public charities and perform due diligence to verify the grantee’s tax-exempt status.
Donor-advised funds provide a flexible solution that allows you to make charitable contributions during your lifetime using cash, securities or complex assets, as well as through your estate. Some benefits include receiving a charitable deduction at the time of your donation and distributing funds to your favorite charities on a customizable timeline.
The Giving Fund has all of the benefits of a private family foundation and more.
The contribution a donor makes to a donor-advised fund is 100% irrevocable and unconditional and destined for a final 501(c)(3) organization. Both private foundations and donor advised funds are charitable giving vehicles that help donors facilitate their giving and achieve their philanthropic goals.
A DAF, or Donor Advised Fund, is an organized way for donors to make charitable gifts. A DAF is an investment account created with the singular purpose of supporting organizations and charities you care about.
When you contribute cash, securities, or other assets to a donor-advised fund at a public charity, , you are generally eligible to take an immediate tax deduction. This allows you to receive the tax deduction in the year that you need it to offset taxes, while providing flexibility on the timeline that you choose to distribute these funds to the ultimate charity. You can choose to distribute all of the funds immediately or invest and grow your fund tax-free and make grants over time. One of the real challenges for those making large charitable gifts is a fear that the charity will not use the donation responsibly, and the donor advised fund provides a unique strategy to give over time rather than in a single lump sum.
Ultimately, assets in a donor-advised fund will be allocated to a charity.
DAFs allow you to give cash, stock, and other assets. DAFs allow the charitable contributor to receive an immediate tax deduction when the contribution is made. While a donor-advised fund isn’t required to distribute any donations, when it does do so, the donor-advised fund must make its grants to another public charity.
It’s important to note the IRS does place some limitations on grants from donor-advised funds including charitable distributions that might provide a private benefit to the giver, pay membership fees, purchase tickets to a charitable event or pay a pledge made by a giver to another charitable organization.
When considering a DAF, it is important to note that donors avoid the ongoing costs of establishing and administering a private foundation— including legal expenses, accounting expenses, tax return preparation, taxes and staff salaries.
Donors enjoy administrative convenience, cost savings (a foundation requires around 2.5% to 4% of its assets each year to run), and tax advantages by conducting their grantmaking through the donor advised fund.
Donors are also able to make grants anonymously and names of donors may be kept confidential when making a grant from a donor advised fund. Private foundations must file detailed, public tax returns on grants, investment fees, names of directors or trustees and salaries.
Unlike DAFs, private foundations are separate legal entities, generally established by individuals, families, or corporations where the donor appoints a Board that controls all investments and grant making and must arrange and support their own grant making and monitoring structure.
With different structures, rules, features, donor-advised funds and private foundations, each comes with a unique set of advantages and limitations.
Reflecting a nationwide trend, many donors and friends are recommending gifts to a Donor Advised Fund.
Since donors can give cash or appreciated assets to a DAF, charities must keep good records when it comes to facilitating conversions of stock, cryptocurrencies, or other non-traditional gifts. WaterStone makes it easy for donors to give in the way they want to give.
Private foundations are subject to more rigorous tax laws and regulations than public charities and are responsible for their tax filing and record keeping. Through a Giving Fund, advisors invest funds for tax-free growth and you can recommend grants to virtually any IRS-qualified public charity, as long as it aligns with WaterStone’s Statement of Faith.
Still, others wish to use DAFs to teach the next generation to be responsible inheritors and givers, keep their family together over time, enhance their engagement in advocacy, or streamline their international giving.
If you’re interested in learning additional information about DAFs or their benefits, please contact WaterStone today. We thank you in advance for your willingness to further God’s kingdom through your contribution.