How to Open a Donor-Advised Fund: A Step-by-Step Guide

How to Open a Donor-Advised Fund: A Step-by-Step Guide

Philanthropy has evolved significantly over the last decade, with donor-advised funds (DAFs) becoming one of the most efficient and impactful ways to give. Donor-advised funds not only provide substantial flexibility and simplicity for donors but can also serve as significant tools for family estate planning. Here’s how you can easily open a donor-advised fund and begin your journey of strategic philanthropy.

What is a Donor-Advised Fund?

A donor-advised fund is a type of giving account that allows donors to contribute cash, securities, or other assets and receive an immediate tax deduction. They can then recommend grants from the fund over time to qualified charities of their choice.

Step 1: Select a Sponsoring Organization

The first step in opening a donor-advised fund is to choose a sponsoring organization.

• National fund providers, community foundations, and single-issue charities are the primary types of sponsors, each offering different benefits depending on your needs.

Step 2: Make Your Initial Contribution

Once you’ve chosen your sponsor:

• Make an irrevocable contribution to your DAF. This can be in the form of cash, publicly traded securities, stocks, cryptocurrency, art, mutual funds, or non-publicly traded assets.

Step 3: Receive Immediate Tax Benefits

Upon making your contribution:

• You are generally entitled to receive the maximum tax deduction allowed by law, in that tax year. Specifically, the IRS allows up to a 60% deduction of your adjusted gross income for cash donations and up to 30% for gifts of appreciated assets.

Step 4: Name Your Account, Successors, and Beneficiaries

In this step:

• Name your donor-advised fund account and appoint any successors or beneficiaries. The successors will manage the account after you’re gone, while the beneficiaries are the charities that will eventually receive the funds.

Step 5: Grow Your Investment

Once the fund is established:

• Your contribution is invested according to the options provided by the sponsor and the growth is tax-free. This allows your donation to potentially increase in value over time, which can maximize the impact of your giving.

Step 6: Advise Grants to Charities

Finally:

• You can start recommending grants to your chosen charities at times that align with your charitable goals. It’s a flexible way of giving that can adapt to your philanthropic strategy over time.

There are several well-known DAF managers that individuals commonly utilize to open and manage donor-advised funds. Here are some of the well-known ones:

National Charitable Sponsors

1. Fidelity Charitable: As one of the largest, Fidelity Charitable offers a donor-advised fund program that is accessible with relatively low account minimums and offers a wide array of investment options.
2. Schwab Charitable: Schwab Charitable is another leading provider, known for its user-friendly platform and the ability for clients to involve their financial advisors in managing their charitable contributions.
3. Vanguard Charitable: A high-profile, non-profit sponsor, Vanguard Charitable is recognized for low-cost investment options and philanthropic services.
4. BNY Mellon Charitable Gift Fund: This sponsor has a long history in the financial industry and extends its expertise to managing donor-advised funds.
5. National Philanthropic Trust: A public charity that provides donor-advised funds and resources to philanthropists and supports a wide variety of charitable interests.

Community Foundations

Community foundations are another popular option for authorizing donor-advised funds. These are localized institutions that offer personalized service and in-depth knowledge of community needs. Some well-known community foundations include:

6. The New York Community Trust: This local foundation offers donor-advised funds and has a deep understanding of the charitable landscape in New York.
7. Silicon Valley Community Foundation: It’s one of the largest community foundations in the world, serving donors with philanthropic interests in the Silicon Valley area and beyond.

Single-Issue or Mission-Driven Charitable Organizations

Additionally, there are charitable organizations and foundations that focus on specific causes or regions. They also offer donor-advised fund programs:

8. National Christian Foundation (NCF): This is a faith-based charity that provides donor-advised funds primarily to donors who are looking to align their giving with their spiritual values.
9. American Endowment Foundation (AEF): While not singly issue focessed, the American Endowment Foundation stands out for its flexibility in allowing donors to support a wide variety of causes. It is an independent, national donor-advised fund sponsor, which means it does not promote any specific charitable cause or agenda.

Each of these DAF sponsors comes with its own set of guidelines, benefits, investment options, and fee structures. They often provide tools and resources to help donors maximize the impact of their charity. Before selecting a sponsor, individuals are encouraged to research and compare these organizations based on their specific philanthropic goals, financial circumstances, and the level of support and guidance they prefer.

Benefits of Using a Donor-Advised Fund

Donor-advised funds are not only easy to start and manage, they also offer numerous benefits:

• Professional fund management at a fraction of the cost of a private foundation.
• Potential tax advantages, including deductions and tax-free growth.
• Opportunities for estate planning, as contributed assets are no longer subject to estate taxes, providing a clear path for legacy planning and family philanthropy.

By opting for a donor-advised fund, you’re embracing a method of giving that combines flexibility, tax efficiency, and strategic planning, enabling you to make a meaningful impact both now and in the future.

Choosing to open a donor-advised fund is more than just a savvy financial move—it’s a step towards creating a lasting legacy and implementing effective family estate planning. Start your philanthropic journey today and see your generosity grow for the benefit of the causes you’re most passionate about.

I’m ready to give to Black Kids Swim through my DAF