Donor Advised Funds Can Help Nonprofits and Donors Alike

As Heart of Indiana United Way gears up for its 98th fundraising campaign, we are acutely aware of inflation. It is straining our budget and our donors. Most of all, it is disproportionately impacting ALICE households—those who are Asset-Limited, Income-Constrained, and Employed.

ALICE is working harder than ever to meet their basic budgets. With the price of groceries alone, it’s even tougher to set aside any savings. One crisis or emergency and these households are at risk of losing their shaky economic footing and falling into poverty.

For donors who are passionate about making a big difference in the lives of ALICE families, using a Donor Advised Fund (DAF) to make your gift could have strategic advantages. DAFs are a giving vehicle which allows people, families, and organizations to make charitable donations, receive immediate tax benefits, and recommend grants to charities over time.

Inflation can push individuals into higher tax brackets, leading to increased tax liabilities. During years with lower income, or when tax deductions are more advantageous, donors may benefit from starting a DAF. And DAFs can benefit charities—and the people they serve—by offering a predictable source of funding.

Why use a DAF for charitable giving?

  • Tax Advantages: Using a DAF could have major tax benefits. When you contribute to a DAF, you can take an immediate tax deduction for the full amount of your donation—even if you don’t distribute the funds to charities right away. This can be particularly helpful for donors who have a large sum they wish to donate but want to spread their giving out over time.
  • Efficiency and Ease: Establishing and managing a DAF is relatively easy and efficient. Most wealth managers handle administrative tasks, such as record-keeping, tax reporting, and due diligence on charities. Which lets you focus on your philanthropic goals.
  • Timing and Flexibility: You can contribute to your DAF when it’s most financially advantageous for you. Then, decide which charitable organizations you want to support and when. Thereby allowing you to be strategic, and ensure your gifts align with your values as well as changing community needs.
  • Anonymity: If you prefer to keep your philanthropy completely private, using a DAF allows you to make grants to charities without disclosing your identity.
  • Legacy and Family: DAFs are a great way to teach younger generations about charitable giving and instill the importance philanthropy has played in your family as well as the community. If you want to involve family members in your philanthropy, DAFs are a great option. Your family can serve as advisors, participate in the decision-making, and carry on the family’s philanthropic legacy after you pass.

While DAFs offer many advantages, they are not for everyone or every situation. As with any charitable giving strategy, it’s important to consider your financial situation, goals, and tax implications before deciding on the best approach for your charitable giving. Financial advisors, tax professionals, and wealth managers can help you make an informed decision, tailored to your specific needs and circumstances.

If giving with a DAF is right for you, United Way stands ready to show you how your support can make a big impact right here in Madison County and across the Heart of Indiana.