donor-advised fund
A charitable giving account where donors make irrevocable contributions, receive an immediate tax deduction, and can recommend grants to charities over time.
Example
“She donated $50,000 to her donor-advised fund in a high-income year, taking the deduction immediately and distributing grants over several years.”
Memory Tip
DAF = donate now for the tax break, grant to charities later. Best of both worlds.
Why It Matters
Donor-advised funds allow you to maximize tax benefits by claiming a deduction in the year you contribute, even if you distribute the money to charities over many years. This strategy is particularly valuable for people who want to bunch their charitable giving into high-income years or coordinate large donations with significant life events.
Common Misconception
Many people believe that once they contribute to a donor-advised fund, they lose control of the money and cannot influence where it goes. In reality, donors retain advisory privileges and can recommend grants to their favorite charities whenever they choose, making it a flexible giving tool.
In Practice
Suppose you receive a $500,000 stock bonus in January and want to give $50,000 to charity each year for the next ten years. You could immediately contribute the entire $500,000 to a donor-advised fund, claim the full tax deduction in that year, and then recommend $50,000 in annual grants to your chosen charities over the following decade.
Etymology
DONOR (giver) ADVISED (can direct the funds) FUND. A fund where the DONOR ADVISES on how to distribute grants.
Common Misspellings
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Related Terms
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See Also
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