A donor-advised fund (DAF) is a separately identified fund or account that is maintained, operated, and legally controlled by a section 501(c)(3) organization like The Stewardship Foundation. In this month’s article, we list why owners of private foundations may want to covert to DAFs with The Stewardship Foundation.
Reason #1. Save time and money
Private foundation owners pay for lawyers, accountants, and office supplies, but with a DAF, owners advise how the funds are used, yet avoid the administrative cost. In some cases, as much as 50%. Cutting costs makes the money go further.
Reason #2. Less hassle
DAFs relieve philanthropists of the hassles of running a foundation. No more tedious paperwork or fact checking potential recipients. For larger foundations, no hiring, firing, or worrying about staff.
Reason #3. More privacy
DAF funds are relatively anonymous because there are no requirements to disclose as much information about their charitable giving. Privacy ensures that philanthropists can support causes that operate within their personal value system, ethical standards, or call to Christian conscience. Private foundation tax forms are public information, exposing operational details and even personal information.
Reason #4. Smaller donor investment fees
Small foundations often pay relatively high fees to the firms that handle their investments. On the other hand, donor funds work with a much bigger pool of money from all the accounts we administer, so fees are lower.
Reason #5. More generous tax deductions
Donors get an immediate tax deduction when they contribute to a fund from their private foundation, but with a DAF, deductions are more generous – instead of a limit of 30% to a private foundation, donors can deduct cash contributions up to half their adjusted gross income each year. There are other tax advantages for appreciated-security donations, and investment gains are generally tax-free (no excise tax).
Reason #6. Protected legacy
DAF funds protect the original intent of the founder. After a founder’s death, family members may disagree on the direction that the private/family foundation should take. They may begin to direct funds to causes contrary to the founder’s moral or ethical values. To protect the legacy intent of the founder, the foundation’s assets can be split among several accounts at donor-advised funds, and those accounts can then be used for different purposes.
If you are interested to learn more about converting from a private/family foundation to donor advised funds, we recommend a recent Wall Street Journal article by Jillian Mincer where she raises the question whether it is time for private foundation owners to convert to donor advised funds.
On behalf of all of us here at the Stewardship Foundation, the board of directors, advisors, and staff, we wish you the most blessed Christmas. I never cease to be amazed at the simple beginnings of our Savior born of the Virgin Mary in a humble stable that continue to influence our world. I have been challenged by the numerous people in the Christmas story who simply said “yes” to God’s plan even though they did not understand fully the result of their acquiescence: Mary and Joseph, Elizabeth and Zechariah, the wise men, and even the shepherds.
It’s football season. The season when, after investing over two hours in front of the TV, we go crazy when one team makes some remarkable adjustment to its game plan and pulls out a win in the last minutes of the 4th quarter. Depending on whether our favored team won or lost, we collectively scratch our heads and wonder why the team waited to the last minute to make a difference!