Donor advised funds and fast food

By Jeff Baldus

Executive director, Austin Area Foundation

Setting up a charitable foundation is hard work. It can take weeks or even months and the to-do list includes a) find board members, b) print up lots of glossy brochures, and c) rent out a fancy banquet hall for the kickoff celebration.

Then there’s the donor-advised fund: the fast-food drive-through lane of philanthropy. You can set one up in a day or two with as little as $5,000. And who needs a celebration when you can buy an extra order of fries to celebrate your new charitable arm? Plus, you get to rack up tax savings. (Make that two orders of fries, please.)

DAFs made headlines in December after the House and Senate passed their sweeping tax overhaul. Changes in tax law raised standard deductions to $12,000 for individuals and $24,000 for married couples. Granted, taking advantage of that perk means no deductions for charitable contributions. But with DAFs, taxpayers can take one large deduction in the year they set it up, even if the money doesn’t get distributed right away.

The higher standard deduction for 2018 income taxes encourages donating more this year to get a tax deduction. Those with donor-advised fund contributions get to deduct the donations in 2018 and then gift money to charities over time.

So what is a DAF? A donor-advised fund is a philanthropic vehicle that allows donors to make a lump-sum charitable contribution and then recommend grants from the fund. And indeed, the tax advantages largely explain why their popularity has soared in recent years.

The amount of donor-advised funds as a percentage of total individual giving nearly doubled between 2010 and 2016 – from 4.4 to 8.3 percent, according to the National Philanthropic Trust, a public charity that provides expertise to donors, foundations and financial institutions.

Today, the average size of a DAF account runs just shy of $300,000; 2016 ended with about 285,000 accounts, up 18 percent from 2014. And every year sees a record shattered from the year previous. The all-time high of $85.15 billion in DAFs (2016) was not long ago an all-time high of $44.71 billion (2012).

DAFs can make charitable giving fun and educational for the whole family. It’s not uncommon for parents or grandparents to use DAFs to teach or reinforce family values. They can be used to teach important initial lessons about money and be a positive bonding vehicle across and among generations.

For more information on how to set up your fund, contact us, by email at jeff@austinareafoundation.org or by calling 507-434-7494

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