For some, the end-of-year holidays engender thoughts of helping those less fortunate. For others, it’s a time to develop strategies to save on taxes. Charitable giving allows you to achieve both goals. However, what if you would like to help but don’t yet know to which charities you would like to contribute? One of the most flexible ways to address this is by utilizing a donor advised fund (DAF). 

A DAF is a fund (similar to a 401(k)) sponsored and administered by a public charity for the purpose of managing charitable donations to other organizations on your behalf. It offers you the opportunity to donate money and get an immediate tax deduction before deciding on which charities you would like to fund. Rather than making donations directly to your favorite charities, you can donate the money to a DAF and then in the future direct grants to those charities from the DAF. For high net wealth individuals and families a DAF provides simpler accounting, higher tax deduction limits, and less strict payout requirements as compared to creating your own private foundation. However, not all DAFs are the same, so selecting the most appropriate one can be challenging.  Here are some questions to ask the sponsoring organizations to help find the right DAF for you.

• What types of grants will the DAF sponsoring organization approve?  Generally DAFs are able to support most 501(c)(3) organizations, but there are sometimes restrictions (such as religious or international).  If you cannot support your favorite charities through the fund, it’s probably not for you.
• Will the DAF accept assets other than cash for funding?  Many DAFs accept publicly traded stock, privately-held company stock, real estate, life insurance, and even art and collectables. 
• What are the investment options?  Is there a minimum account size?  Some DAF sponsors allow donors or their financial advisors to manage the funds within the DAF themselves.  This may be of value to you if you plan on making distributions over a long period of time.
• What is the process for making grants from the fund?   Is there a minimum amount?  Can it be done by phone or online?  Is there an approval process?  What are the costs? 
• What resources are provided to help clients identify causes or charities and plan their giving?  If you know exactly what charities you want to support, you won’t need such help.  But some sponsoring organizations additionally help educate their DAF account holders on local needs as well as how to be more effective donors.  Working with such organizations could help you develop a greater sense of pride and satisfaction through your charitable giving.
• Can the assets in a DAF account be transferred to another DAF sponsor?  You may want to change in the future for any number of reasons, or may simply prefer not being locked in.
• What happens when the DAF account creator is no longer alive? Can successor trustees be named?  Can the DAF holder designate charitable beneficiaries to receive the final amount in the fund? 

When it comes to selecting a DAF, there is no shortage of choices.  The largest national DAFs are run by brokerage houses Fidelity, Schwab, and Vanguard. If you are more inclined to support your local community, check to see if there’s a foundation in your area that provides one. In my community the LAMVCF not only supports national charities through their DAF but local nonprofits as well.  Regardless of your preference, DAFs remain an excellent vehicle through which you can accomplish good in the community while at the same time saving on your taxes.

(This information does not constitute investment, legal or tax advice and should not be used as a substitute for the advice of a professional legal or tax advisor.  Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor.  Perigon and its directors, officers, agents and employees are not permitted to render tax or legal advice. Perigon is a registered investment adviser. More information about the firm can be found in its Form ADV Part 2, which is available upon request by calling 877-977-2555 or by emailing compliance@perigonwealth.com)