Introduction
Donor advised funds (DAFs) have become increasingly popular among donors as a way to manage their charitable giving. DAFs allow donors to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund over time. However, there are some rules and regulations that donors must follow when using a DAF. In this article, we will discuss the donor advised fund rules that you need to know in 2023.
What is a Donor Advised Fund?
A donor advised fund is a type of charitable giving account that allows donors to make an irrevocable charitable contribution to a sponsoring organization. The sponsoring organization then manages the fund and invests the assets. Donors can recommend grants from the fund to charitable organizations over time.
Donor Advised Fund Rules
There are several rules and regulations that donors must follow when using a DAF. Here are some of the most important donor advised fund rules to keep in mind:
Minimum Contribution
Most sponsoring organizations require a minimum initial contribution to open a DAF. The minimum contribution can range from $5,000 to $25,000 or more, depending on the sponsoring organization.
Tax Deductibility
Donors can receive an immediate tax deduction for their contribution to a DAF. However, the tax deduction is limited to the donor’s adjusted gross income (AGI) for the year of the contribution. Any excess can be carried forward for up to five years.
Grant Recommendations
Donors can recommend grants from the fund to charitable organizations. However, the sponsoring organization has ultimate discretion over the grants and must ensure that the grants are made for charitable purposes.
Prohibited Transactions
Donors cannot use DAF assets for personal benefit or to fulfill a pledge to a charity. They also cannot receive any goods or services in exchange for their contribution.
Investment Restrictions
Sponsoring organizations have investment policies and guidelines that must be followed when managing DAF assets. Donors cannot direct investments or receive any investment benefits from the fund.
Benefits of Donor Advised Funds
Despite the rules and regulations, donor advised funds offer several benefits to donors. Here are some of the most important benefits:
Tax Efficiency
Donors can receive an immediate tax deduction for their contribution to a DAF, which can be beneficial for those who want to give to charity and lower their tax liability.
Flexibility
Donors can recommend grants from the fund to charitable organizations over time, which allows for flexibility in charitable giving.
Professional Management
Sponsoring organizations manage the DAF assets, which can be beneficial for donors who do not have the time or expertise to manage their own charitable giving.
Conclusion
Donor advised funds are a popular way for donors to manage their charitable giving. However, there are rules and regulations that donors must follow when using a DAF. By understanding the donor advised fund rules and regulations, donors can ensure that they are using their DAF in a compliant and effective manner.
