A recently emerging concept of giving is Donor Advised Funding (DAF). A DAF is a now funded/future gift primarily used during the account owner’s lifetime. Any remaining account balances become legacy gifts and are distributed to a named beneficiary (must be a qualified recipient) upon the death of the account owners. At present, the Foundation has received donor-directed contributions from Fidelity Charitable.
Establishment – The donor establishes an account with an established public charity that provides and manages the DAF service. A contribution is made to an individual account. The contributor relinquishes ownership of the asset but retains the right to manage disbursements in accordance with the distribution criteria established of the managing ( now owning) entity. This contribution date is usually considered the tax-deductible date. This contribution has been accepted based on the account distributions being used solely for the support of virtually any IRS qualified public charity. CAUTION: A managing entity has the right to restrict distributions or to only make them to certain classifications of service. Understand all criteria before making a contribution. The DAF managing entity conducts due diligence to ensure funds granted out will be used for charitable purposes and the grantee is an IRS qualified public charity.
Contributions – Contributions, both opening and additional, must be in accordance with specific terms and conditions set by the DAF entity. Acceptable types of contributions vary.
Distributions (Gifting) – The donor designates gifts from the account to any recipient who is deemed qualified by the managing entity. The giving option provides flexibility in the timing and amounts of gifts. Recurring gift options are available with some account providers.
Account Balance – The balance in the account may be invested. Any gains or losses incurred to affect the balance. Gains are added to the account balance and may only be distributed to qualified recipients. Losses will. lower the account balance. Different service providers allow differing investment choices.
Account Fees – A managing entity is allowed to charge fees for the services provided. These vary and need to be understood.
Tax Implications – For tax purposes, a deposit into a DAF is usually considered a contribution on the date of contribution. Therefore, when a gift is made at a later date, the deductible event had occurred at a contribution to the account. A gift from the account is NOT considered a deductible event at the time of gifting. Thus, a donor would receive any tax benefits on the date of deposit to the account. Gifting could be spread over an extended period of time. This option allows individuals to take advantage of the stacking concept in income tax filings. Gifting appreciated assets can have tax benefits depending on individual circumstances and IRS regulations.
ALL DAF ACCOUNTS ARE NOT CREATED EQUAL. THEY MAY CONTAIN DIFFERING TERM AND CONDITIONS RELATED TO FEES, TYPES OF CONTRIBUTIONS, INVESTMENT OPTIONS, DISTRIBUTION RESTRICTIONS, MINIMUM ACTIVITY LEVELS, GIFTING MINIMUMS AS WELL AS OTHER DIFFERENCES. A THOROUGH UNDERSTANDING OF THE DAF ACCOUNT TERMS AND CONDITIONS, AS WELL AS THE IRS TAX REGULATIONS, MUST BE DONE PRIOR TO FUNDING.
