Donor-advised funds (DAFs) are a type of charitable giving vehicle that allows individuals to make a charitable contribution and receive an immediate tax deduction, while retaining the ability to recommend how the funds are distributed to charities over time. While the rules governing donor-advised funds can vary depending on the sponsoring organization and the specific fund, here are some general rules that typically apply:
1. Tax Deductibility: Contributions to a donor-advised fund are typically tax-deductible in the year they are made, subject to certain limits based on your income and the type of asset contributed.
2. Ownership and Control: Once you contribute to a donor-advised fund, the funds become the property of the sponsoring organization, which has legal control over the assets. However, the donor retains the right to make recommendations about how the funds are distributed to charities over time.
3. Eligible Charities: Donor-advised funds can only make grants to eligible charities, which are defined as 501(c)(3) public charities or private operating foundations. Grants cannot be made to individuals, political organizations, or organizations engaged in illegal activities.
4. Grantmaking: Donors can recommend grants from their donor-advised fund to eligible charities at any time, subject to the sponsoring organization's policies and procedures. Most organizations require a minimum grant amount, and some may have restrictions on the types of charities or causes that can receive grants.
5. Investment Options: Donor-advised funds typically offer a range of investment options, including mutual funds, exchange-traded funds (ETFs), and individual securities. The investment earnings in the fund can be used to increase the amount available for charitable grants over time.
6. Fees and Expenses: Donor-advised funds typically charge administrative fees and investment expenses to cover the cost of managing the fund. These fees can vary depending on the sponsoring organization and the investment options selected.
7. Time Limitations: While there is no legal requirement for donor-advised funds to distribute funds to charities by a certain time, the sponsoring organization may have policies or procedures that limit the amount of time donors have to make grant recommendations. Some organizations also have minimum balance requirements that must be met in order to maintain an active account.
It is important to consult with a financial advisor or tax professional before setting up a donor-advised fund to understand the specific rules and requirements that apply to your situation.
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