Californians are known for their generosity and desire to make a positive impact. But what if you could combine your charitable giving with smart financial planning?

Donor-advised funds (DAFs) are a rapidly growing tool for charitable giving and might be ideal for you. Whether a DAF suits you will depend on your philanthropic goals, tax situation, and estate planning needs.

This article brought to you by Bulman Wealth Group will explore donor-advised funds, their benefits, how they work, and whether they might be a good option for you.

At Bulman Wealth, we have decades of expertise in providing wealth management services, including legacy and retirement planning in Northern and Southern California.

What Is a Donor-Advised Fund (DAF)?

A DAF is a charitable investment account set up by an individual, family, or organization to support charitable causes. Managed by a third party, DAFs facilitate large donations by allowing donors to make a tax-deductible contribution and then recommend grants from that fund to various charities over time. This setup provides immediate tax benefits and flexibility in fund distribution.

Think of a DAF as a charitable savings account. You establish a fund with a public charity and contribute assets such as cash, stocks, or even real estate. One notable feature of DAFs is the ability to invest the contributed funds, allowing the charitable amount to grow over time and potentially increasing the overall impact of giving. DAFs also streamline and organize philanthropy by consolidating contributions into a single account, simplifying the administrative side of charitable giving.

Benefits of Using a DAF

Here are some of the potential benefits of using a donor-advised fund.

Tax advantages: You can receive an immediate tax deduction for donations made within the year. This can be especially advantageous for California residents facing high state income taxes. Additionally, donating appreciated assets may help lower your capital gains taxes and reduce your taxable estate for estate tax purposes.

Flexibility and control: You can make charitable contributions whenever it suits you and suggest grants to various qualified charities. Involving your family in the grant-making process is also an option. Moreover, you have the choice to remain anonymous with your grant recommendations.

Tax-efficient giving: Donations grow tax-free within the DAF, maximizing the impact of your charitable dollars.

Simplified record-keeping: With a DAF, you only need to keep track of contributions to the fund rather than multiple receipts from different charities. This simplifies your tax reporting and record-keeping.

Professional management: The funds in a DAF are often managed by financial professionals who can provide expertise on investing the funds and potentially growing the assets available for charitable giving. Investment options can vary depending on the sponsoring organization.

Support for diverse assets: DAFs can accept a variety of assets, including non-cash assets like real estate, privately held business interests, and more. This flexibility can make it easier to contribute significant assets to charity.

Legacy building: A DAF can be used to establish a charitable legacy. You can name successors to the fund, allowing your charitable giving to continue beyond your lifetime.

How Does a DAF Work? (Step-by-Step)

Opening and using a DAF is a straightforward process. Here’s a step-by-step breakdown.

Step 1: Open a DAF With a Sponsoring Organization

Numerous reputable sponsoring organizations offer DAFs. Choose one that aligns with your philanthropic goals and preferred investment options. Our team at Bulman Wealth can help you evaluate different options.

Step 2: Contribute Cash, Securities, or Other Qualified Assets

Once you’ve chosen a sponsoring organization, you can contribute various assets to your DAF. This could include cash, stocks, bonds, or even real estate (subject to specific regulations).

Step 3: Receive an Immediate Tax Deduction

In the year you contribute, you’ll receive an immediate tax deduction on the full value of your donation, regardless of when you distribute the funds to charities. This can be a significant tax benefit, especially for California residents in high tax brackets.

Step 4: Recommend Grants to Your Favorite Charities Over Time

You have the flexibility to recommend grants to qualified charities whenever you choose. There’s no pressure to distribute all the funds at once. You can take time to research causes you care about and strategically allocate your charitable dollars.

Step 5: The Sponsoring Organization Distributes the Grants to the Charities

Once you recommend a grant, the sponsoring organization will handle the due diligence and distribute the funds to your chosen charities. This allows you to focus on your philanthropic goals without the administrative burden.

Is a DAF Right for You?

While DAFs offer a compelling combination of tax benefits and flexibility, they may not be suitable for everyone. Consider these questions to determine if a DAF aligns with your financial and philanthropic goals:

• What are your long-term charitable giving goals?
• Are you in a high tax bracket and looking for ways to reduce your taxable income?
• Do you have appreciated assets, like stocks or real estate, that you want to donate while avoiding capital gains taxes?
• How important is flexibility and control in your charitable giving?
• Are you interested in involving your family in your philanthropic efforts?
• Do you prefer a streamlined, organized approach to managing your charitable contributions?
• Are you considering DAFs as part of your estate planning strategy to reduce your taxable estate?

Reflecting on these questions will help you decide whether a DAF fits your financial and philanthropic objectives.

How Bulman Wealth Group Can Help

Donor-advised funds offer a powerful tool for Californians who want to combine smart financial planning with charitable giving. By providing immediate tax deductions, tax-efficient growth, and flexibility in grant-making, DAFs can help you maximize the impact of your philanthropic dollars.

At Bulman Wealth Group, we can help you evaluate if a DAF aligns with your legacy planning. We will advise on contribution strategies to maximize tax benefits and help navigate the DAF selection and setup process. 

Our wealth management services in Roseville break down complex concepts into easily digestible steps, focusing on income, investment, taxes, healthcare, and legacy planning.

Contact us today or call (916) 458-8199 for a complimentary consultation to learn more about DAFs. Our team of experienced financial advisors in California can answer your questions and guide you through the process.