Why Are Donor Advised Funds Catching Attention?

Donors are drawn toward potential growth (and tax savings) for charitable contributions

For nearly 90 years, charitably-minded individuals and families have established Donor Advised Funds to help carry out their philanthropic wishes. Employment of the Donor Advised Fund steadily grew, especially beginning in the 1990s, eventually resulting in official recognition in the Internal Revenue Code under 2006 tax law updates. Today, over one million Donor Advised Fund accounts hold nearly $160 billion in charitable assets, according to the latest numbers.

Why have they become so popular? Individuals and wealth advisors are recognizing how well they can work, long-term. A Donor Advised Fund is an investment account that allows your charitable contributions to grow, gives you a say in where the funds are directed, and creates potential tax savings (read more HERE).

The growth of these funds as a useful charitable giving tool has made this vehicle something of a celebrity. Articles are popping up in mainstream financial publications, as well as in academic articles. A top priority for our team is keeping up with proposed legislation and commentary about charitable giving, including particular vehicles such as Donor Advised Funds, one of many types of funds available through the Community Foundation.

Here is an overview of a few of those fund types:

A Donor Advised Fund enables you to establish a specific account for charitable giving. You make a tax-deductible contribution of cash or other assets to the fund and then recommend grants during the current year and in future years, depending on your goals and plans.

Another option is unrestricted giving. Through regular grantmaking and our work with hundreds of nonprofits, CFA stays on top of the community’s changing needs, a capability that served our community well during the pandemic, when we launched the COVID-19 Rapid Response Fund. An unrestricted fund, such as our Fund for the Future, allows you to support community needs that have yet to be identified. One of the biggest benefits of a community foundation is its perpetual structure, which creates an opportunity to support our community in the most impactful way, forever, even as priorities in our region shift.

But what if you have a specific cause in mind? To target charitable giving to areas of need (think education, health, environment, or the arts), your can set up a field-of-interest fund to establish parameters for grant making under the ongoing guidance and expertise of the Community Foundation’s staff. Field-of-interest funds can be a wonderful avenue to accomplish your charitable goals even more efficiently and effectively.

You may also want to consider a designated fund to focus charitable giving on a specific agency or purpose. Over time, our staff manages the distributions from the fund according to the terms you establish.

Whether you’re interested in a specific cause or supporting the community you call home, we’d love to help you explore charitable giving strategies that make the most of every dollar you give, in terms of tax-efficiency and in terms of the impact you want to create, right here at home. You can reach out to us today to get started.