Demystifying Donor Advised Funds

The IRS created an easier alternative for philanthropists to give back, the donor advised fund. A donor advised fund provides philanthropists with the same tax benefits as a foundation, but with less hassle and more control. By giving through a donor advised fund, rather than a foundation, the donor does not have to have to worry about submitting an annual report, all they have focus on is giving to whomever they want, and whenever they want.

The basics for a donor advised fund are:
1. Donor makes an irrevocable gift to the donor advised fund account
2. The donor immediately receives the maximum tax deduction allowed by the IRS
3. The donor determines the administration of the account such as the name, and any successors or beneficiaries
4. The donor’s gift is placed in the account where the gift can increase, tax free
5. When the donor is ready, a recommendation is made for a grant to the charity of their choice.

Fidelity Charitable’s founder, Ned Johnson was innovative in his thinking when the IRS first introduced donor advised funds by providing donors with the extra added benefit of investing their philanthropic dollars into investment houses so that their donation could do more. Today, more than 3 percent of charitable giving in the U.S. comes from donor advised funds

There is no reason for development professionals to be wary of donor-advised funds. It is a win for the donor and a win for the non-profit. Rather than being intimidated that a donor gives through a donor advised fund, focus on connecting that donor to the good works that your organization is doing, and you just might receive a donation from a donor-advised fund.

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