DAF Series Part #3: Is a DAF right for you?
Updated: Oct 15
DAFs have heaps of use cases, but for the average donor*, I believe these are the top 5 reasons you would want to use one. In all of these examples, you are looking at what it means to invest and donate appreciated securities. If you are just looking to donate straight cash, a DAF is typically not where your focus should be.
You want to “front-load” charitable contributions in a high-income year, but then use a DAF to spread out charitable grants over time. This enables you to get tax deductions this year, but take your time to make donations accordingly.
You have stocks or other investments you don’t like. Maybe you've altered your investment approach, like opting for socially responsible funds. Or perhaps you've inherited stocks you're not a fan of. If you plan on donating these funds, a DAF allows for easy investment adjustments without facing capital gains tax.
You believe there may be higher-impact opportunities to give to in the future. A DAF will grant you more time to research high-impact opportunities, rather than being forced to make all donations today.
You want to donate to a charity that doesn’t accept appreciated stock. A DAF enables you to contribute appreciated stock, but then make subsequent grants in cash to these organizations.
You donate securities to so many charities, you can’t keep it all straight. If you are making donations to say, 15 charities a month, that’s 180 transactions to do a year! That would be a lot for anyone. A DAF allows you to set up your donation strategy all at once and let it run.
If you meet at least one of the above conditions (and ideally more than one) plus you acknowledge and accept that there are typically higher banking fees and fewer investment options when it comes to using a DAF, then it’s looking like a very good option for you.
A gentle reminder, no one has a perfect donation strategy. We want to maximize our impact, but we may need to compromise sometimes. Perhaps you want the tax-advantages of DAF, but the organization you want to donate to does not have 501(c)(3) status…then a DAF simply isn’t an option as they don’t allow for that. Or maybe you want to spread your charitable grants out over time, but you don’t like the fees that come with a DAF. Tough luck finding another account that will let you do this. Again, it's not about having the perfect plan, it's getting it good enough. And really, at the end of the day, making meaningful donations to high-impact causes is what matters most. You’ll have time to iterate on this strategy as you continue to donate.
Head onto the last part of this series, a comparison of DAF providers, with guest post written by Michael Dickens.
If you want a full breakdown on whether or not it makes sense to use a Donor-Advised Fund or a Regular Brokerage Account for donating appreciated securities, make sure to download our Giving Guide. In it we breakdown different factors you might consider, such as tax advantages, banking fees, and operational ease of donating.
*DAFs have many use cases outside of holding stocks, bonds, and funds. They can accept many other types of investments like real estate, life insurance policies, restricted stock units, crypto, and more. To keep things easy though we stuck to the most common use cases for our readers.
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