Donor Advised Funds: Dos and Donts
Did you know? A donor advised fund is one of the many types of charitable funds you can establish at the St. Louis Community Foundation. Field of interest funds, designated funds, and scholarship funds are also ways you can make a difference in the community while fulfilling your goals for tax and charitable planning.
If you have a donor advised fund (DAF) with the Community Foundation, you know it’s useful because it allows you to make a tax-deductible transfer of cash or marketable securities that is immediately eligible for a charitable deduction. Then, you can recommend donations from the fund to your favorite charities to meet community needs as they emerge.
Donor advised funds are simple, tax-efficient investment accounts. They are the most popular type of charitable fund for a reason: their ease of set up and use, tax and other benefits make them a great option for individuals and businesses, and offer benefits when paired with a private foundation.
A DAF at the St. Louis Community Foundation offers the additional benefit of your very own local giving experts who know your community, offering personal service and helping you bring your giving inspirations to reality. With a DAF, you can contribute a range of assets, such as cash and appreciated assets, and receive the highest immediate tax deduction allowed by law. You can also choose which of our investment options you want your charitable funds to be invested in, or work with your own professional advisor. Let the Community Foundation handle all the details as you make grant recommendations to your favorite nonprofits any time you wish.
Your gifts to your donor advised fund are tax deductible transfers to the Community Foundation, which is a charitable organization recognized under Internal Revenue Code Section 501(c)(3). We follow the Internal Revenue Service’s requirements that disbursements from your donor advised fund meet certain important qualifications to preserve that charitable tax status–for everyone’s benefit. While DAFs can do a lot, it’s a good idea to periodically review a few types of disbursements that don’t meet the IRS’s rules, and therefore are not permissible donations from your DAF. For example:
Because they fall under a different (and more favorable) set of IRS rules than private foundations, a DAF is restricted from supporting a private non-operating family foundation. Please reach out to our team to learn more about this requirement. We’d love to explore how your donor advised fund and your private family foundation can work together to achieve your charitable goals. Some fundholders even decide to close their private foundation and consolidate their giving with the Community Foundation to achieve greater impact, save on expenses, and achieve better tax results.
A donor advised fund cannot be used explicitly to satisfy a personal pledge to a charitable organization, such as to a capital campaign. They also can’t be used to buy tickets to fundraising events, such as galas and golf tournaments, where the cost of the ticket is not fully tax deductible. The reason for this is that the IRS views the taxpayer as receiving benefits from the event (food, drinks, swag), and this “private benefit” muddies the waters of tax deductibility. Fortunately, donor advised fund can still be used to support or sponsor an event as long as all benefits, including tickets to the event, are declined.
As always, the Community Foundation team is honored to be your first call when you encounter a question about your donor advised fund or any other charitable giving opportunity. Reach out to us anytime at info@stlgives.org.
