How to Use Donor-Advised Funds for Charitable Giving

Charitable giving is not just an act of generosity; it is a pivotal component of strategic estate planning. While there are many different types of charitable giving strategies, donor-advised funds (DAFs) can be an especially effective vehicle for philanthropy, offering a blend of flexibility, convenience, and tax benefits. Understanding how to leverage DAFs can significantly enhance your charitable contributions and play a crucial role in your estate plan. An experienced attorney can provide guidance on the use of these tools and other strategies that can help you manage your assets, minimize taxes, and ensure that your wishes will be carried out correctly.

What Are Donor-Advised Funds?

Donor-advised funds are investment accounts specifically designed for charitable giving. Managed by public charities, these funds allow donors to give money or assets to charity, make use of tax deductions, and provide recommendations on how assets will be distributed to their chosen charities.

How Do Donor-Advised Funds Work?

When creating and managing donor-advised funds, a person will follow several steps:

• Contribution: A donor will contribute to a DAF and immediately receive a tax deduction for the year the contribution is made.
• Investment growth: The funds will be invested, and they will have the potential to grow tax-free, increasing the impact of future charitable grants.
• Grant recommendation: A donor can recommend grants to eligible charities at any time, retaining advisory privileges over how the contributions are distributed.

Advantages of Using Donor-Advised Funds in Estate Planning

• Immediate tax benefits: When you contribute to a DAF, a donor will receive an immediate tax deduction for the year of the contribution, even if the funds are distributed to charities over several years. This can be particularly advantageous if a donor experiences a year with unusually high income.
• Estate tax planning: Assets placed in a DAF are removed from a person’s estate, potentially reducing their estate tax liability. This makes DAFs an attractive option for donors who are looking to minimize their estate taxes while supporting charitable causes.
• Flexibility and control: DAFs offer the flexibility to support various charities over time without the need to set up a private foundation. Donors can adjust their charitable giving as their interests or the needs of their communities evolve.
• Legacy building: Donor-advised funds can be a crucial part of legacy planning, allowing a person to establish a tradition of giving in their family. Donors can involve family members in the decision-making process, fostering a sense of philanthropy across generations.
• Simplified record-keeping: DAFs simplify the process of charitable giving by consolidating tax receipts and providing a single source for tracking donations. This can be especially beneficial when managing an estate plan.

How to Get Started With Donor-Advised Funds

If you are planning to use donor-advised funds as part of your charitable giving strategy, you will want to do the following:

• Choose a sponsor: Select a public charity that administers DAFs. This could be a community foundation, a financial institution, or a national charity.
• Decide on your contribution: Determine the assets you will contribute. DAFs can accept a variety of assets, including cash, stocks, and real estate.
• Plan your giving strategy: Work with your attorney and financial advisors to integrate your DAF into your overall estate plan, aligning your charitable goals with your financial objectives.

Contact Our Naperville Charitable Giving Strategy Lawyer

Incorporating donor-advised funds into your estate plan can offer significant benefits, from tax advantages to the fulfillment of your philanthropic goals. To explore how a DAF can enhance your estate plan, contact a DuPage County estate planning attorney at the Gierach Law Firm by calling 630-756-1160. Our experienced lawyer can guide you through the intricacies of charitable giving, ensuring that your philanthropic efforts align with your broader estate planning objectives.