Intentional Holiday Giving with Donor Advised Funds

December 21, 2023

As the end of the year approaches, we enter a season of giving, reflection and celebration. The holidays offer us a unique opportunity to make a meaningful impact for causes we care about. For younger children, it’s a time of year defined by receiving. But as we get older, the holidays are characterized more and more by giving and we get to see the joy of the season in the eyes of those that receive our gifts. For those fortunate enough to have more than they need, there is a wonderful opportunity to be intentional and strategic in this season of generosity using one of the most powerful philanthropic tools, the donor-advised fund (DAF).

 

Donor-advised funds have been around for several decades, with the first being established in the United States in the 1930s. But the modern version of donor-advised funds, as they are recognized today, gained popularity in the late 20th century.

 

You might be asking, why not just give the old-fashioned way and write a check to your favorite charity? Donor-advised funds offer some unique advantages that may make them worth considering during year-end giving:

 

  1. Tax Strategy – Contributing to a DAF will allow an immediate tax deduction if you itemize. Overall deductions for donations to public charities, including donor-advised funds, are generally limited up to 60% of AGI for cash gifts, while the limit for appreciated non-cash assets held more than one year is 30% of AGI. Excesses above the threshold in AGI within a given year can be carried forward for five years. This is particularly effective if you have a “windfall” year that is uniquely high in income compared to your average year. If you don’t currently itemize your deductions, this can still be effective using the bunching strategy, in which you bunch multiple years of donations into one year to make sure you maximize the tax benefit, while retaining flexibility over when the charities of your choice receive those funds, due to the nature of the DAF.

 

  1. Strategic Planning – DAFs allow you to plan your giving strategy more thoughtfully, over a longer time horizon. While your contribution is immediate, disbursement of funds to the charities of your choice can be spread out over many years and can even become an activity for the whole family to participate in together at the end of every year. I’ve seen families give each member a “charitable budget” and the opportunity to research non-profits that they care about. Then they approach their family with their own proposal for giving and explain why they care about that particular cause. It increases a culture of generosity within the family and provides insight into each other’s passions. For younger generations, it shifts some of the emphasis within the family toward giving and away from receiving.

 

  1. Investment Opportunities - DAFs often allow donors to invest the funds, potentially growing the pool of resources for charitable grants. This tax free investment growth further enhances the impact of your contributions over time, allowing for more gifting than would have been possible otherwise.

 

  1. Simplify Your Giving - Instead of making multiple individual donations, a DAF allows you to consolidate your charitable giving into one account. This simplifies your record-keeping and provides a centralized platform for managing and distributing funds to various charities.

 

Most major brokerages like Fidelity or Schwab, can open DAFs with very low initial contribution requirements. For those more locally oriented, there are great opportunities and resources at The Community Foundation for Monterey County. They have deep connections with local non-profits, and offer a grant portal which makes it simple to donate to the charities you support, once you have your DAF established. It may be wise to engage with a qualified financial advisor before moving forward to help assess your broader financial strategy and goals to make sure it aligns with your new DAF.

 

As the year draws to a close, may your generosity be both intentional and impactful. Donor-advised funds provide strategic and efficient means to support the causes you hold dear, while optimizing your long-term planning. By leveraging the power of DAFs in your year-end giving, you can create a legacy of positive change, making a lasting impact on the lives of those in need.


 Please see important disclosure information here.

Zach Harney, CFP®, CIMA®, AIF® is a Wealth Advisor at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey. He welcomes questions you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Zach Harney, 2340 Garden Road Suite 202, Monterey, CA 93940 or email zach@montereypw.com.