You might be in position to benefit from a major trend in philanthropy today — the increased popularity of donor advised funds. If you’ve ever found yourself with a taxable event, or appreciated asset, a donor advised fund might be right for you. Perhaps more significantly, such a fund offers an extra layer of anonymity, which is increasingly important to many donors.
What is a Donor Advised Fund?
Quite simply, a donor advised fund is a vehicle by which a donor can make fully tax-deductible gifts with ease. The gifts go to a dedicated 501[c]3 fund, and the donor gives advice on where those assets should be distributed over time. Compared to family foundations, these funds have little red tape, are easy to use, and shift most of the reporting requirements to an outside administrator.
One drawback of this type of fund is that the donor gives up an element of control. As the name implies, the donor advises the fund manager on where gifts from the fund should go, but the manager is the
one who decides, in accordance with the donor’s wishes. The manager’s risk of reputational harm by not honoring donor intent helps ensure your desires are followed. Nonetheless you may want to explore fund custodians who align with your goals, such as Donors Trust.
Advantages of a Donor-Advised Fund
Similar to family foundations, a donor-advised fund allows you to write off funds now without yet knowing where your money will make the most impact. This allows you to take a tax deduction in one year while distributing the funds in future years.
A donor advised fund add a layer of anonymity. Today’s world of wokeness and cancel culture has driven many donors to value their privacy more than ever. The Mackinac Center honors this concern and never reveals our supporters without their consent.
Donors of varying degrees of wealth use DAFs. Many of them have learned from the mistakes of other philanthropists, who had their intent violated by allowing subsequent generations too much control over their philanthropy. If you would like to share a best practice or learn more about best practices of people who use donor-advised funds, or if you’re interested in using other strategies to make an impact, email us at Milligan@ mackinac.org or JimWalker@mackinac.org.
