What Is a Donor-Advised Fund?
Think of a donor-advised fund as an investment account for your charitable giving. After you have created your personal fund, you can make donations to it throughout the year, or in a lump sum. Then use the fund as a centralized hub to recommend grants to your favorite charities. Using a donor-advised fund, instead of donating directly to the charities, offers a number of benefits that help you make the most of your charitable giving. You can read more about the advantages on our Benefits of a Donor-Advised Fund page.
Below is a breakdown of how a donor-advised fund works and the step-by-step process of creating your own.
Donor-Advised Fund Step-by-Step
1. Setup your fund
To setup a fund, you need to start by filling out a fund application. Click here to start the donor-advised fund application. On the application you will need to choose a name for your fund. You can name it almost anything you prefer, such as “The Johnson Family Fund” or “The Clean Water Fund”. In addition, you will need to nominate a primary advisor who is the person designated to make decisions regarding the fund, such as grant recommendations to charities, legacy plans, and other fund matters. You can also nominate secondary advisors and professional advisors to make certain decisions on the primary advisor’s behalf. Secondary advisors are generally spouses, children, siblings, or employees.
2. Contribute cash or other appreciated assets
Once your fund is setup, you can begin donating to it. One of the benefits of a donor-advised fund is that you can donate assets other than cash. You can also donate nearly any other asset, including appreciated assets like real estate or cryptocurrency. By donating the appreciated asset, you will receive a deduction for the full market value of the asset without incurring capital gains taxes.
Since Haven Charitable is a non-profit organization, you take the deduction for your donation at the time it is initially contributed to you donor-advised fund in Haven, instead of when you recommend grants to other charities. This enables donors to strategically make donations when it is right for their particular financial situation. They can then take their time and recommend grants to charities on their own timeline.
3. Start giving
As soon at the fund has been credited with your contribution, you can begin recommending grants to other charities as long as they are within the United States and are a 501(c)3 charity. You can schedule grants throughout the year or in a large lump sum. There is a requirement on when or how soon you are required to recommend grants; As a general guideline, we suggest advisors grant at least 5% of their donor-advised fund to charities per year.
You may notice that all donor-advised funds platforms, not only Haven Charitable, use the terminology “recommend grants to charities” rather than “donating to charities”. This is because the contributions to your donor-advised fund are irrevocable and are technically donations to Haven Charitable at the time of contribution. (This is why you receive the deduction at the time you contribute to your fund.) From the IRS’s perspective, this means Haven Charitable is responsible for the funds, and the fund advisors can “recommend” which charities Haven Charitable distributes grants to. However, Haven will always follow the advisors’ recommendation so long as it falls within the Program Guidelines.
4. Grow your fund
While you decide which charities to support, the money in your fund can be invested so that it can potentially grow, tax free. Any profit the fund receives through these investments is distributed back into your donor-advised fund and can be used to support additional charities. Even though the profit is tax-free, the advisors do not receive a deduction for this gain, nor can they withdraw it from their fund.
5. Create a legacy
You can continue to recommend grants and support charitable organizations beyond the lifetime of the original primary advisor. The donor-advised fund can be passed on to one or more people or organizations, gifted in a will, or setup as an endowment so that it continues to benefit charities of the advisor’s choosing into the future.
That’s it! Let’s get started!
It only takes a few minutes to fill out the donor-advised fund application. And activation of the fund is quick. Start today so that we can begin building a better tomorrow.
Questions? Want more information?
Reach out to one of our donor-advised fund specialists to get questions answered or to help you setup your own donor-advised fund.
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