How Does a Donor Advised Fund Work?

A Donor Advised Fund is an investment account that is specifically designed for charitable giving. It is efficient, simple, and provides flexibility and options. While not the only way to give to charity, it can be among the best ways to ensure that the charity receives the money the donor wants it to have without risk of an estate plan being misinterpreted or not created in time or correctly. A Donor Advised Fund can also be setup at a custodian that then allows charity contributions to many different charities and at different times all controlled by the account donor.  One benefit is that a large one time donation of appreciated securities or from the sale of a business can be donated, which helps avoid capital gains taxes on the donation.  Since a Donor Advised Fund is one of the better choices for anyone desiring to make a sizable contribution to a charity that is important to them.

Who Manages the Money?

The charity or the custodian is the administrator for the Donor Advised Fund, to make things easier and to reduce costs and complications by getting too many other people involved in the process.

How Much Does the Donor Need to Provide?

Depending on the fund, there will be a set amount for donation. Many companies that offer these kinds of Donor Advised Funds require as little as $10,000 down to set up a Fund. From that point, a donor can continue to add to the money in the Fund from their personal assets.

What Are the Tax Breaks?

There are immediate tax breaks for charitable contributions when you make a donation to a Donor Advised Fund. These breaks depend on your income level and other factors, but you can expect to take the maximum contribution the IRS will allow.

Can a Donor Change Things Later?

One of the main factors to consider when setting up a Donor Advised Fund is that this Fund is irrevocable. That means you cannot change your mind and pull the money out, or transfer it to a different fund. Once you have set up the Fund and placed money from your personal assets into it, that money effectively belongs to the charity. All donors should be sure they are giving money to the charity that is most important to them, and that they are comfortable with the level of donation, before they set up a Donor Advised Fund.