Donor-Advised Funds and Eligible Assets
On August 17, 2006, President George W. Bush signed the Pension Protection Act of 2006 into law. In addition to paving the way for considerable reform of company funded pension plans, the Act served to formally recognize donor-advised funds (DAFs) in the Internal Revenue Code while establishing rules and regulations for their usage.
Fast forward to today and DAFs, the fastest growing charitable giving vehicle in the U.S., now constitute over 10 percent of the country’s total charitable giving while providing high-net-worth families and individuals a streamlined way to fulfill their philanthropic goals.
Total Value of Grants Made by Donor-Advised Funds ($ in billions)
Source: https://www.nptrust.org/reports/daf-report/
Fundamentally, a DAF is a charitable giving account created within a public foundation. It enables donors – individuals, families, or organizations – to achieve their end-goal of contributing to charitable causes while earning an immediate tax deduction in the process. While donors relinquish ownership of the donated assets, they maintain the right to offer guidance on how and when the funds are allocated to registered charities and whether to remain anonymous in their giving.
What Type of Assets Can be Donated?
Donor-advised funds typically accept a wide range of assets that can be donated for charitable purposes. The specific types of assets that can be donated to a donor-advised fund may vary depending on the sponsoring organization's policies, but here are some common types of assets that are often accepted:
1. Cash
This is the most straightforward and commonly donated asset to a DAF. You can contribute cash directly to the fund. Additionally, the deductibility limit for cash contributions is higher than the limit for non-cash assets.
2. Stocks and Securities
Donating appreciated stocks, bonds, or other securities can be advantageous because you may receive a tax deduction for the fair market value of the asset, and you can potentially avoid capital gains tax on the appreciation.
3. Real Estate
Some DAFs accept donations of real estate, including residential and commercial properties. However, handling real estate donations can be complex, so not all DAFs may offer this option.
4. Art and Collectibles
In some cases, DAFs accept donations of valuable art, collectibles, or other tangible assets. However, there may be restrictions and appraisal requirements for such donations.
5. Life Insurance Policies
You can name a DAF as the beneficiary of a life insurance policy or donate a paid-up policy to the fund.
6. Cryptocurrency
Some DAFs are now accepting donations of cryptocurrency like Bitcoin and Ethereum.
7. Retirement Accounts
While regulations currently prevent qualified charitable donations being distributed directly from retirement accounts into DAFs, you can still make charitable use of your retirement accounts by naming your DAF as the beneficiary of the respective accounts. This strategic move not only supports your philanthropic goals but also integrates seamlessly with your retirement planning, ensuring a legacy of impact.
8. Privately Held Business Interests
Your stake in a privately owned business likely has a relatively low-cost basis and may have experienced significant appreciation over time. By donating this interest into a DAF, you have the potential to avoid the capital gains tax that would arise if you were to sell the interest yourself and then contribute the resulting proceeds. Doing so may also increase the amount available for charity by up to 20%.
It's important to note that the acceptance of specific assets may vary from one donor-advised fund to the next, so it's essential to check with the sponsoring organization to confirm their policies and any restrictions they may have on asset types. Have unanswered questions regarding DAFs or other forms of charitable giving? Connect with the team at Fortis Financial Group for a free consultation.