DAFs simplify charitable giving. Investors can establish a DAF with a sponsoring organization relatively easily and then take time to determine where they want to direct their grants. Gifts may qualify for a charitable tax deduction in the year that they are donated, assuming the investor meets Internal Revenue Services (IRS) requirements. The account grows, tax-free. Investors also can contribute a range of assets—securities, real estate, art and other property—to the DAF. When donating appreciated securities to a DAF, investors may eliminate potential capital gains taxes. Sponsoring organizations also simplify record keeping and help assure charities’ eligibility qualifications. (Tax impact of DAFs and contributions will differ from one investor to another.).

Donors should understand that the charitable foundation managing the money has legal control of the money. Gifts are irrevocable and fees are charged for administering the account and on the underlying investments. Donors can recommend charities, but the managing charity ultimately has the authority to approve or deny any recommendations made by the donor. As a practical matter, sponsoring organizations typically follow their investors’ direction so long as the recipient is a qualified 501(c)3 charitable organization as recognized by the IRS.

With clear understanding of the potential power of DAFs along with their personal investment and charitable goals, values-based investors may want to consider DAFs that provide for ESG and sustainable strategies. For many investors, the option to grow fund balances through sustainable investments while ultimately targeting charitable support to causes that are important to them is appealing. (768)

Christopher Day is executive vice president at Breckinridge Capital Advisors.

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