What is a Donor-Advised Fund?A Donor-Advised Fund is a simple, tax-smart way for you to support your favorite charities.

In fact, it is actually a public charity, but we like to think of it as a gifting "parking lot." Let us explain.

To get started, you open a Donor-Advised Fund account at your favorite custodian or maybe a community foundation. You can fund it with cash or securites; sometimes real estate is allowed. Contributions of cash and securities are eligible for charitable deductions if you itemize*. The cash or assets you contribute to the Donor-Advised Fund may be invested for potential tax-free growth, which can further increase your charitable impact over time. Once your contributions are in the Donor-Advised Fund, you can recommend grants from the Fund to other public charities of your choice, at any time. So, as you can see, it’s like a "parking lot" with benefits until you decide where you’d like the money to ultimately go.

At Allium, we find Donor-Advised Funds to be a cost-effective way for individuals and families to carry out their charitable giving vision, and a valuable tool in managing overall tax liability.

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Note: Donor-Advised Fund accounts also can be a charitable beneficiary of IRA assets or be the named remainder beneficiary of a charitable trust. This allows you to name your next generation to carry out your family’s legacy of giving to the charities you hold close to your heart.

*Clients who itemize rather than take the standard deduction typically do so because the total of their itemized deductions exceeds their standard deduction amount. Inflation-based adjustments pushed standard deduction amounts for 2023 to new highs: single filers may claim a $13,850 standard deduction, while married couples filing jointly can claim a $27,700 standard deduction.

Overall deductions for donor-advised funds are generally limited to 50% of adjusted gross income (AGI). The limit increases to 60% of AGI for cash gifts, while the limit on donating appreciated non-cash assets held more than one year is 30% of AGI. Contribution amounts more than these deduction limits may be carried over up to five subsequent tax years.

If you are considering this charitable tax strategy, you may want to consult with your tax and legal advisors before taking action.

Investment advisory services offered through Allium Financial Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission. Registration does not imply any level of skill or training. This post is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.