Faith & Finance - What's a Donor-Advised Fund? (And Should You Use One?)

If you have ever wished your giving could be both simpler and more strategic, there is a powerful tool worth considering: a donor-advised fund, often called a DAF. A donor-advised fund can help you organize your charitable giving, make tax-efficient contributions, and thoughtfully support the ministries and causes you care about. But before considering any financial strategy, it is important to begin with the heart. Paul writes in 2 Corinthians 9:7: “Each one must give as he has decided in his heart, not reluctantly or under compulsion, for God loves a cheerful giver.” Generosity begins in the heart, not in the tax code. At the same time, wise stewardship may include using financial tools that help us give more effectively. When used properly, a donor-advised fund can help you give joyfully while managing charitable resources efficiently. What Is a Donor-Advised Fund? You can think of a donor-advised fund as a charitable giving account designed to support the causes you care about. You contribute cash, stocks, real estate, business interests, or other eligible assets to the fund. You may then receive an immediate charitable tax deduction and recommend grants to qualified ministries and charities over time. In other words, a donor-advised fund separates the act of contributing from the act of distributing. You might make a larger contribution during a high-income year or before selling an appreciated asset. Then, rather than immediately deciding where every dollar should go, you can prayerfully consider which ministries or organizations to support. The fund is administered by a sponsoring organization that handles recordkeeping, reviews grant recipients, issues grants, and provides tools for managing the account. We often recommend the National Christian Foundation (NCF), one of the largest Christian charitable-giving organizations in the country. Its founders included Christian financial leaders Larry Burkett and Ron Blue. How a Donor-Advised Fund Works Suppose you are preparing to sell a business, a piece of real estate, or another asset that has significantly increased in value. Selling the asset yourself could result in a substantial capital-gains tax. However, you may be able to contribute the asset to a donor-advised fund before the sale. Because the contribution is an irrevocable charitable gift, you may receive a tax deduction based on the asset’s value and potentially avoid capital-gains taxes that otherwise would have been due. That can allow more money to be directed toward charitable purposes. Once the asset is sold within the donor-advised fund, the proceeds can be granted to ministries immediately or invested for potential growth while you determine where to give. When you are ready, you recommend a grant—perhaps $10,000 to your church, a missions organization, or another qualified charity. The sponsoring organization verifies the recipient and sends the gift either in your name or anonymously. The Benefits of a Donor-Advised Fund Donor-advised funds have become a popular charitable-giving tool because they combine flexibility with professional administration. Simpler Record-keeping: Instead of collecting tax receipts from numerous organizations, you generally receive one receipt for your contribution to the donor-advised fund. You can then manage and track your charitable grants in one place. Potential Tax Benefits: You generally receive the charitable deduction when you contribute to the fund, rather than when grants are later distributed. Contributing appreciated assets may also help reduce or eliminate capital-gains taxes, allow