How a Donor-Advised Fund Can Benefit Your Estate Plan
A sometimes-overlooked part of estate planning is charitable giving. End of life gifts to charities can leave a lasting impact on the causes you care about and have the added benefit of reducing the size of your taxable estate. A Donor-Advised Fund (DAF) can be an excellent solution for incorporating charitable giving into your estate plan, allowing you to make a difference now as well as in the future.
How do DAFs fit into an estate planning strategy? Let’s break it down.
What Is a Donor-Advised Fund (DAF)?
A Donor-Advised Fund is a charitable giving account that allows you to donate money, receive immediate tax benefits, and then advise on which charities should receive your funds. In short, it’s a type of charitable investment account where you can direct donations to nonprofit organizations you select over time.
Once you contribute funds to your DAF account, the funds are invested, and you recommend grants to charitable organizations whenever you choose. You can name successors to carry on your charitable giving after you’re gone, and you also can name your DAF account as a beneficiary of your estate after you die.
How DAFs Fit into Estate Planning
- Tax Benefits During Your Lifetime
When you contribute to a DAF, you get an immediate charitable deduction on your income taxes, even though the actual donation to the charity can happen later.
DAFs also allow for donations of appreciated assets like stocks, real estate, or other investments, which means you can avoid paying capital gains taxes on gains for appreciated assets you contribute to a DAF. By contributing an appreciated asset directly to the DAF, you can maximize both your tax benefits and your charitable impact.
- Continuity of Giving After You’re Gone
One of the main features of a DAF is its ability to carry on your charitable giving after your death. Through your estate plan, you can name successor advisors or designate your DAF to continue making grants to your chosen causes. This ensures that your values continue to be supported, and your philanthropy lives on through future generations.
Including a DAF in your estate plan can increase flexibility in changing the charitable beneficiaries of your estate. If you name a charity directly as a beneficiary in your Will, you must update your Will to change the charitable beneficiaries. However, if you name your DAF account as a beneficiary in your Will, you can update the charitable beneficiaries that will receive grants from your DAF without having to update your Will each time you add or remove a charity from that list.
Things to Consider before Opening a DAF Account
- Charitable Goals: Before incorporating a DAF into your estate plan, it’s important to define your charitable objectives. Think about the causes you are most passionate about and how you want to support them over the long term.
- Fund Size: Depending on the size of your estate, you may want to consult with a financial planner or estate planning attorney to determine the amount you will allocate to a DAF. If you’re leaving a significant portion of your estate to charity, setting up a DAF could be an efficient way to manage and distribute those assets.
- DAF Fees and Administration: While DAFs are generally cost-effective, it’s important to understand any fees associated with managing the account and distributing grants. Work with a financial advisor to understand the specific fees of the DAF provider you choose.
A Donor-Advised Fund can be a flexible way to ensure your charitable goals are met in your estate plan while maximizing tax benefits. It offers the ability to control how and when charitable donations are made, both during your lifetime and after death.
If you plan to include charitable giving in your estate plan, or have questions regarding how a DAF may fit into that plan, please contact Beresford Booth at info@beresfordlaw.com or by phone at (425) 776-4100.
