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Scholarships & DAFS

Always consult your tax, legal and financial professionals.  We do not provide tax or legal advice.

The use of a donor advised fund (DAF) is often overlooked as a smart source for your annual charitable contributions. If you are like most families, you send a variety of annual contributions to a variety of charities that hold your passion. A more tax efficient method could be to open a DAF account, or build one up with contributions over time, and then make your annual contributions out of the DAF each year to your favorite charities. This method provides you with tax breaks as you build your fund, instead of each year as you send individual checks to charities.  Click the pdf link below for an example of how to use a DAF to fund a scholarship that you wish to set up. Click the link to see how a group of retired teachers, or any other group of people, can establish a DAF. Contact us for more information on how to establish a scholarship and a DAF to fund it.

The name donor advised fund comes from the process whereby the owner of the fund advises the DAF fund to make charitable donations each year to their favorite charities.  This is an advisory notice only and the DAF sponsor does not have to do as you advise them to.  Most generally, they do exactly as you advise them to unless doing so would potentially create a regulatory issue like self dealing.  Your financial advisor can continue to manage the funds inside of your DAF.  Your advisor should be well versed in building a portfolio to achieve your long term family legacy goals.

Here are the most notable tax breaks for DAFs:     Source - American Endowment Foundation

  1. The donor receives an immediate tax deduction in the year they contribute to their DAF.  Since donor advised funds must be administered by a public charity, contributions to a donor advised fund immediately qualify for maximum income tax benefits.  The IRS mandates annual limitations, depending upon the donor’s adjusted gross income (AGI):
    • Deduction for cash – Up to 60% of AGI.
    • Deduction for securities and other appreciated assets – Up to 30% of AGI.
    • There is a five year carry forward for unused deductions.
  2. Capital Gains Avoidance – The donor will incur no capital gains on gifts of appreciated assets (like real estate, securities or other illiquid assets).
  3. AMT – Alternative Minimum Tax – If the donor’s income is subject to AMT, their contribution to their DAF will reduce their AMT impact.
  4. Estate Tax – Your DAF will not be subject to estate taxes.
  5. Tax – Free Investment Appreciation – The investments in the DAF appreciate tax free, providing the donor additional funds that they can use for charitable giving.

Always consult your tax, legal and financial professionals.  We do not provide tax or legal advice.