The Chronicle of Philanthropy reports that a flood of contributions to donor advised funds pushed assets of the charitable accounts to a new high of nearly $54-billion in 2013, according to a new report.
But the report also found that those accounts distributed a slightly smaller share of assets to charities last year than in 2012.
Donors poured more than $17-billion into the accounts, an increase of 24 percent, according to the report by the National Philanthropic Trust.
What’s a donor advised fund?
A donor advised fund (DAF) is an investment account administered by a charity or investment organization.
- A donor opens a DAF by making a contribution, and receives an immediate income tax deduction.
- The donor no longer controls the funds contributed, but can recommend grants to charities of the donor’s choice (that’s the “donor advised” part).
DAFs provide tax advantages to the donor
For example, an individual who is having an exceptionally big income year can donate to a DAF in that year (and obtain a current charitable deduction), while the disbursement of grants to charities through the DAF can be made over several later years.
- When Patty and I sold our house in 2012, we were fortunate enough to have a gain. It would have been a relatively big income tax year for us. We set aside part of the gain in a DAF account in 2012, and got a helpful charitable deduction. In 2013 and 2014, the DAF account has given away 90% of its balance to charities we recommended. We’re happy with how this has worked for us.
A DAF can be specially advantageous to a person who holds securities that have appreciated in value; by donating the actual securities to a DAF the person not only can obtain a charitable deduction, he or she can avoid taxes on the capital gains attributable to the securities.