What is a donor-advised fund and how does it work?

A donor-advised fund, or DAF, is a charitable account maintained by a sponsoring organization. A client makes an irrevocable contribution to the DAF, may qualify for a charitable tax deduction, and can recommend grants to eligible charities over time. The sponsoring organization owns and controls the assets, while the donor retains advisory privileges over investment and grant recommendations.

What assets can clients contribute to a donor-advised fund?

Clients can typically contribute cash and publicly traded securities to a donor-advised fund. Some DAF sponsors also accept more complex assets, such as real estate, privately held stock, cryptocurrency, and collectibles. Acceptance policies vary by sponsor, and noncash gifts may require review, valuation, liquidation, and tax documentation before a contribution is completed. The Dunham Donor-Advised Fund states that it may accept cash, securities, real estate, privately held stock, collectibles, and cryptocurrency, subject to its requirements and acceptance.

When does a client receive a tax deduction for a donor-advised fund contribution?

A client may qualify for a federal charitable income-tax deduction when making an irrevocable contribution to a donor-advised fund, rather than when the DAF later makes grants. Federal charitable deductions generally require itemizing deductions. The available deduction can depend on the donated asset, fair market value, adjusted gross income limits, substantiation requirements, and other tax facts. Clients should consult a qualified tax advisor.

Can a financial advisor remain involved after a client opens a Dunham Donor-Advised Fund?

Yes. With the Dunham Donor-Advised Fund, the client’s financial advisor and Dunham manage the fund’s investments, while UI Charitable manages the charitable aspects of the DAF. Clients and families can recommend the timing, amount, and charitable recipients of grants. Contributions are irrevocable, and prospective donors should review investment risks, fees, asset-acceptance requirements, and the DAF agreement before opening an account.

Donor Advised Funds: Tax-Smart Giving and Client Growth

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Donor Advised Funds: Tax-Smart Giving and Client Growth | Dunham