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  • Writer's pictureProvision Staff

Donor-Advised Funds: A Smart Giving Approach for the New Year

Updated: Dec 29, 2023

A growing number of Baptist foundations, including Provision, offer donor-advised funds (DAFs) as an innovative way for individuals to make a lasting impact through their giving. The rise of donor-advised funds within Baptist organizations provides donors with a flexible and impactful means of contributing to causes they care about. In this short article, we will explore the concept of donor-advised funds, the tax advantages associated with DAFs, and what happens to these funds when the donor passes away.


A Flexible Giving Solution


Donor-advised funds enable individuals to donate cash or appreciated stock to a fund bearing their name. This unique structure allows donors to enjoy an immediate charitable deduction while retaining the ability to request distributions to their chosen charities. Once the donor contributes, the organization has legal control over it. However, the donor, or the donor’s representative, retains advisory privileges concerning the distribution of funds and the investment of assets in the account.


Tax Advantages for Gifts to Donor-Advised Funds


Donating to a donor-advised fund comes with several appealing tax benefits:


100% Income Tax Deduction

Donors who can itemize deductions can benefit from a 100% income tax deduction in the year they contribute to these funds. Depending on the tax situation, this benefit makes donor-advised funds a highly attractive option for those seeking to reduce their taxable income.


Bypass Capital Gains Taxes

Donating long-term appreciated assets to a donor-advised fund allows donors to bypass capital gains taxes. This benefit means that individuals can give stocks or other assets that have appreciated over time without incurring additional tax liability.


Estate Tax Benefits

Assets contributed to a donor-advised fund are removed from the donor’s estate for inheritance tax purposes, potentially lowering the overall tax burden on heirs.


The Fate of Donor-Advised Funds After the Donor’s Passing


What happens to a donor-advised fund when the donor passes away? Donors have several options to consider:


Permanent Endowment

One option is to establish a permanent endowment, with earned income distributed semiannually to a charity designated in writing. This route ensures a long-lasting impact on the chosen cause.


Surviving Spouse’s Role

If there is a surviving spouse, the donor-advised fund can continue with them, allowing them to make distribution requests. Doing so enables the philanthropic legacy to live on.

 

Surviving Children’s Involvement

Alternately, if there are surviving children, the donor-advised fund can be sustained with the next generation, allowing them to make distribution requests and fostering a culture of giving within the family.


In conclusion, the growing popularity of donor-advised funds with Baptist foundations offers donors a flexible and tax-efficient way to support charitable causes. These funds provide donors the power to give and the ability to shape their giving legacy for generations to come.




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