By Jeannette Leighton, CPA

Donor-advised funds (DAFs) have been around since the early 1900s, but they have gained in popularity over the past few years as they’ve become more readily available and accessible.

DAFs function like charitable investment accounts: donors can make contributions to their fund, take an immediate tax deduction, and direct grants to charities over time. A DAF is classified as a 501(c)(3) charity, enabling cash donations up to 60 percent of adjusted gross income and up to 30 percent of adjusted gross income for appreciated securities. The funds in a DAF can be invested in order to grow tax free and generate more money for giving. The DAF also allows for anonymity if desired by the donor.

With a new federal $10,000 deduction limit on state and local taxes, the “bunching” of charitable contributions enables taxpayers to itemize and receive tax benefits for their donations in specific years, while claiming the standard deduction in other years. Bunching through the use of a DAF preserves the up-front tax deduction, and also ensures the charity receives its annual contribution from grants made by the DAF in subsequent years.

Besides the benefit from a tax standpoint, DAFs can serve as a teaching tool to engage the whole family in philanthropic decisions. They function like a family foundation, without the associated expense of a private foundation.

DAFs are one of the most beneficial and fastest-growing means of charitable giving today. In fact, our firm launched the Glenmede Donor-Advised Fund in partnership with the National Philanthropic Trust last year. Now, almost everyone is able to support their favorite causes and teach their children to live generously through the use of a donor-advised fund.

Jeannette Leighton, CPA, is a tax advisor in the wealth strategies group of Glenmede. She provides tax services to the company’s high-net-worth clients. She can be reached at jeannette.leighton@glenmede.com.