Donor-Advised Funds: A Smarter Way to Give?
If charitable giving is already part of your life, it should also be part of your financial plan. A donor-advised fund is a charitable account that allows you to contribute cash or investments today, potentially receive a tax deduction for the year of the contribution, and recommend grants to eligible charities over time. This can be particularly helpful during an unusually high-income year or when combining several years of planned giving could make your itemized deductions more valuable.
Donor-advised funds can also provide an efficient way to donate appreciated investments. For example, instead of selling stock that has increased significantly in value and potentially realizing a capital gain, you may be able to contribute the shares directly to the fund. The full value of the shares can then be used for charitable purposes, and your contribution may qualify for a deduction based on the investment’s current value, subject to applicable tax rules and limitations. You could then use the cash you had planned to donate to purchase replacement shares with a higher cost basis.
There is an important tradeoff: Contributions to a donor-advised fund are irrevocable. Once contributed, the assets are permanently committed to charity and legally controlled by the sponsoring organization. You may recommend grants, but you cannot take the money back. Before making your next charitable gift, consider whether changing when—and what—you give could help you support the same causes more thoughtfully.
Use our Charitable Giving Strategy Finder to explore which approaches may fit your situation.
