Endowment Ministries - Donor-Advised Fund
by Lisa P. Sierk, Director of Endowment Ministries
LSierk@rrumc.org | 216.926.1702
A Donor-Advised Fund (DAF) is one of the fastest-growing and most flexible ways to manage your charitable giving. Think of it as a personal charitable investment account.
How a Donor-Advised Fund (DAF) Works
A DAF is an account managed by a sponsoring public charity, such as a community foundation or a financial services firm’s charitable arm (like Community West Foundation or Fidelity Charitable / Schwab Charitable).
The process generally involves three main steps:
Contribute: You make an irrevocable contribution of cash, stock, or other assets to your DAF account.
Immediate Tax Deduction: In the year you make the contribution to the DAF, you are generally eligible for an immediate tax deduction (subject to IRS limits), even if the money has not yet been granted to charities.
Recommend Grants Over Time: The funds in your DAF are invested and can potentially grow tax-free. Over time, you can recommend grants from your DAF to any qualified public charity recognized by the IRS. The sponsoring organization handles all administrative work, due diligence, and grant distribution.
✨ Key Benefits of a DAF
DAFs are popular because they offer significant advantages for both tax planning and charitable giving:
Immediate Tax Deduction, Flexible Giving: You can "front-load" your giving by making a large contribution now to get an immediate tax deduction (useful in a high-income year), but distribute the money to charities years later.
Tax-Free Investment Growth: Any growth in your DAF account is tax-free, meaning your money can potentially grow over time, increasing your total charitable giving capacity.
Avoid Capital Gains Tax: If you donate appreciated securities (like stocks or mutual funds held for over a year), you avoid paying capital gains tax on the appreciation and receive a deduction for the fair market value of the asset. This is a major tax advantage.
Simplified Recordkeeping: You receive one tax receipt from the DAF sponsor for all contributions, rather than collecting receipts from every single charity you support throughout the year.
Privacy: You have the option to recommend grants anonymously if you prefer.
Legacy Planning: You can name successors or designate charities to receive the balance of your DAF after your lifetime.
by Lisa P. Sierk, Philanthropic Advisor, Director of Endowment Ministries
⚠ Important Considerations
Irrevocable: Once you contribute money to a DAF, the donation is final. You cannot take the money back.
Loss of Legal Control: The sponsoring organization has legal control over the assets, although they almost always follow the donor’s recommendations for grants.
Cannot Fulfill Personal Pledges: Grants cannot be used to fulfill personal pledges or provide any personal benefit to you (such as event tickets or membership dues).
Fees: Sponsoring organizations charge administrative and investment management fees, which reduce the total amount available for grants.
A DAF is an excellent tool for donors who want to combine tax efficiency with a flexible, long-term approach to philanthropy.
If you would like to learn more or discuss your charitable giving, please don’t hesitate to reach out to Lisa Sierk, Director of Endowment Ministries, at the e-mail or number below.
Lisa can be reached at LSierk@rrumc.org or 216.926.1702.