How a donor-advised fund can benefit your charitable giving strategy

Q: Tax-efficient charitable giving

When you contribute assets to your DAF, you typically can take the tax deduction right away, even though the money might not be distributed to a charity until much later. Contributions made to donor-advised funds are tax-deductible in the same year they’re made, and assets in these accounts can grow tax-free. The assets you contribute to a donor-advised fund permanently leave your estate.

A donor-advised fund (DAF) can provide a cost-effective and flexible way to support your favorite charities. If you plan to make contributions over time, a DAF offers several benefits, including an immediate income tax deduction and the ability to take your time deciding which charities to support through the DAF.

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Key benefits of a donor-advised fund

Flexibility and choice

Contribute to a DAF at anytime
After funding a DAF, take your time deciding which charities to support
Recommend grants at any time to be sent to your chosen charities, which are generally approved if they meet IRS and DAF provider guidelines
Support one charity or several

A senior woman and young girl help out in the greenhouse at the local farm.

Tax efficiency

Take an immediate tax deduction when you contribute to a DAF (subject to IRS rules)
DAF assets grow tax-free
Gifting appreciated securities removes them from your estate, potentially reducing your personal capital gains and estate taxes

Professional investment management

The assets you contribute are professionally managed
Make recommendations about how assets are invested, subject to approval by the DAF provider

How can a donor-advised fund fit into your charitable giving?

How a donor-advised fund works

01
To open a donor-advised fund, you first select a sponsoring organization (or fund administrator), which is a public charity that:
- Actively invests and maintains funds
- Make grants to charities
DAFs can be sponsored on a national level or through a community or regional organization. Community foundations, universities, religious organizations and other organizations offer DAFs, as do financial service companies, including UBS (see below). Work with your UBS Financial Advisor to determine which path is appropriate for your needs.
02
Once established, you make an irrevocable, tax-deductible contribution to your DAF. Depending on the sponsoring organization, you can donate liquid or illiquid assets as long as they meet the minimum required contribution amount. These assets can include:
- Cash
- Stocks and mutual funds
- Private business interests
- Tangible assets such as real estate, art or other collectibles
- Cryptocurrency
03
Your donation is professionally managed and the assets continue to grow tax-free. In addition, you can continue to make contributions at any time.

Giving through a donor-advised fund

Flexibility in choosing which charities to support

Flexibility in choosing which charities to support

Annual disbursements are required at the fund level, not the account level, which allows you the flexibility to decide when and how much you want to grant from your DAF account. As long as the qualified public charities fall under the DAF’s grantmaking policy, the sponsoring organization will typically abide by a donor’s wishes.

You can make donations all at once or over time. You can make donations to a single charity or a variety of qualified charitable organizations. Each donor-advised fund sets its own minimum amount for grants to charities.

Tax-efficient charitable giving

Take advantage of anonymous giving

Some donors might have reasons they would like a gift to remain anonymous. Perhaps it is of a sensitive nature, outside of the family philanthropic mission. Some donors may prefer to remain private.

A DAF can offer anonymity, as the sponsoring organization is the one declaring gifts on their tax return, not at the account level. Many families with private foundations will keep a DAF as well in order to make certain gifts anonymously.

A donor-advised fund or private foundation?

Some families and individuals might prefer to make charitable donations by setting up a private foundation, which is a separate legal entity with its own articles of incorporation, bylaws and board of trustees. Unlike donor-advised funds, foundations are required to file annual tax returns and distribute at least 5% of the previous year’s average assets each year.

However, private foundations provide additional flexibility for making grants. For example, a private foundation can provide scholarships and fellowships directly to individuals, make direct grants to families or individuals facing hardships and emergencies or run its own charitable programs. Your financial advisor and other professional advisors can help you determine which is best for your particular situation and objectives.