What is a Donor-Advised Fund?
Donor-advised funds are charitable investment accounts that can be opened at many of the major brokerage firms, such as Charles Schwab and Fidelity, or at a local community foundation. Two of the biggest advantages of donor-advised funds is the flexibility they offer to donors and their tax advantages.
Individuals with a donor-advised fund can contribute to the account any time. The money in the account is invested and grows tax free. The donor-advised funds function as a personal charitable giving fund for the donor as the donor advises on the timing, amount, and recipient of any charitable donations from the account. Donations from the donor-advised fund must go to public charities.
Donor-Advised Funds Tax Benefits
Donor-advised funds are considered to be tax-exempt public charities. Contributions to a donor-advised fund are tax-deductible in the year of the contribution. This is an advantage when the donor makes a large contribution in one year as they can recognize the tax benefit of the charitable donation even though the donor-advised fund may distribute that money to public charities over several years.
Contributions to a donor-advised fund can be made in the form of cash or securities. Contributing appreciated stock or mutual fund shares can be particularly advantageous. If the appreciated asset donated was owned for more than one year, the full market value is tax-deductible for the donor. The donor effectively removes the asset and any of its future appreciation from their gross estate and the donor avoids any capital gains tax on the appreciation if the investment is sold within the donor-advised fund.
Many donor-advised funds allow the donor to name a successor advisor for the account. This way, individuals can provide heirs with an opportunity to continue charitable giving.
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Alyssa Dalbey is a Wealth Manager with Schultz Financial Group Inc.
Schultz Financial Group Inc. (SFG) is a wealth management firm located in Reno, NV. Our approach to wealth management is different from many other wealth managers, financial advisors, and financial planners. Our team of fee-only fiduciaries strives to help our clients build their wealth across four capitals: Financial Matters, Physical Well-being, Psychological Space, and Intellectual Engagement. We provide family office and wealth management services to clients located in Nevada, California, and other states. If you’d like more information, please check out our website or reach out to us via our contact page.