Giving Made Easy: The Perks of Donor-Advised Funds

Charitable giving is a noble endeavor. However, administrative tasks can make this a daunting process preventing many from fulfilling their philanthropic goals. An Indiana University / Notre Dame study¹ found that the Tax Cuts and Jobs Act (TCJA) in 2017 may have reduced charitable giving by billions. By raising the standard deduction, the TCJA raised the hurdle for givers who historically benefited from itemized deductions; thereby, eliminating one of the primary incentives to charitable giving.

Perhaps you want to give, but don’t quite know the best way to get started. Many potential donors find themselves overwhelmed by the administrative burden of tracking and timing gifts, and do not want to sacrifice growth in the name of benevolence. A Donor-Advised Fund (DAF) can be an effective solution to these common obstacles, making the process of charitable giving more streamlined and efficient.

Making Giving Easy

Managing donations, keeping track of receipts, and ensuring compliance with various regulations can be onerous tasks that may keep you from giving. A DAF simplifies the administrative aspects of charitable giving. You can make a single contribution to a DAF and then give it to several charities on your timeline. The beauty is you only have one record to keep come tax time.

When you contribute to a DAF, the sponsoring organization takes on the responsibility of managing the funds. Schwab Charitable’s DAFgiving360 (www.schwabcharitable.org) is an example of a DAF sponsoring organization you may wish to consider. This includes handling all the paperwork, ensuring compliance with IRS regulations, and providing you with a single receipt for your combined contributions. This enables donors to focus on philanthropic giving without administrative responsibilities. Most institutions will have an online portal with diligent recordkeeping where individuals can readily refer to the timing and size of past gifts. Good recordkeeping enhances the effectiveness of donating by corroborating accurate donation logs for the purposes of claiming tax deductions, providing proof in case of dispute, and reaching individual philanthropic goals on time.

Ease of DAF Investment Strategies

Another significant challenge donors face is determining the most effective way to invest funds earmarked for charitable purposes. Many individuals find themselves uncertain about how to grow their contributions while ensuring the necessary funds required remain accessible.

DAFs provide an excellent solution through professional investment management services. The institutions providing DAF services will typically offer a diverse array of investment options, enabling donors to select strategies that align with their individual risk tolerance, growth objectives, and philanthropic aspirations. These investments are overseen by experienced professionals, dedicated to maximizing the growth of your contributions over time. This approach not only enhances the overall impact of your charitable giving but also ensures your funds are managed prudently.

Let’s Get Started

Although DAFs reduce administrative challenges, donors are still faced with finding a charity aligning with their cause and making that determination can be difficult. Before donating, it is essential to know how the charity utilizes funds and what outcomes they aim to achieve.

There are ways to investigate nonprofit organizations that are publicly available and relatively easy to use. Charity Watch groups were formed for the purpose to review non-profit organizations, their mission, governance and results. Before donating, consider utilizing reputable watch groups such as:

• CharityNavigator.org
• Give.org (part of the Better Business Bureau)
• GuideStar.org

Additionally, most DAFs also maintain a list of pre-approved charities and can help you find a worthy recipient in your area of interest. It may be possible to add a new 501(c)(3) non-profit organization outside of their listed organizations if you do not see your preferred charity in their grant list. You can view whether an organization is registered as a 501(c)(3) by going to the IRS site:  https://apps.irs.gov/app/eos/. It is important to make sure the charity has a 501(c)(3) designation because it signals to donors and the IRS the charity meets certain ethical and operational criteria to receive the relevant tax deduction. While it can be daunting to start, charitable giving is not designed to be exclusive. Even modest contributions of our individual time and resources can significantly impact our communities. Apella can be an ally helping clients to navigate their philanthropic pursuits with attention to their broader financial plan.

Sources:

1. “Tax Law Change Caused U.S. Charitable Giving to Drop by about $20 Billion, New Study Shows: 2024: News: News & Media: News & Events: Lilly Family School of Philanthropy: Indiana University Indianapolis.” Lilly Family School of Philanthropy, Indiana University Indianapolis, 29 July 2024, philanthropy.indianapolis.iu.edu/news-events/news/_news/2024/tax-law-change-caused-us-charitable-giving-to-drop-by-about-20-billion-new-study-shows.html. Accessed 17 Oct. 2024.

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