Donor Advised Funds: Benefits Are Driving Popularity

This philanthropic tool offers flexibility and benefits that private foundations may not.

multiple hands holding a wooden heart

A shift in the values and priorities that drive charitable giving is also driving a shift in the way that many affluent and high-net-worth individuals choose to give.

Donor advised funds have nearly doubled their share of overall charitable giving by individuals in the U.S., according to the National Philanthropic Trust. A 2017 study found that the percentage of individual giving flowing through donor advised funds grew from 4.4 percent in 2010 to 8.3 percent in 2016.

Some families are even moving assets out of private foundations to multiple donor advised funds to give a younger generation more flexibility. And some private foundations are shutting down completely.

Generational shifts mean big changes

A few years ago, assets from wealthy families flowed into donor advised funds in sums typically less than $250,000. Now, says Beth Renner, National Director of Wells Fargo Philanthropic Services, it's sometimes millions of dollars.

"We're starting to see generational differences around how families want to engage with philanthropy," she says. 

"The [younger] generations are saying, 'I don't want that administrative burden that goes along with a foundation. I want to engage in the fun part of it,'" Renner adds. 

That's because donor advised funds can be much simpler to manage than private foundations. There are no board meetings and much less paperwork for donors. 

More benefits for donors and recipients

Donor advised funds are gaining popularity for a number of additional reasons, as well, including:

Anonymity. Unlike gifts to a charity through a private foundation, which become public record, individuals contributing to a donor advised fund do not have to be specified as grants are awarded from the fund. Donors can make their gifts anonymous and delegate part of their giving to other family members if they like. 

Potential tax advantages. In addition to having the immediate tax deduction relative to your overall income tax liability — by donating highly appreciated assets to donor advised funds — the invested assets also have the potential to grow tax-free.

"Many of the people we see using donor advised funds will have an event of some kind," such as the sale of real estate or a business, says Matt Lawson, National Manager - Wells Fargo Philanthropy Fund, Wells Fargo Philanthropic Services. "They could use the tax deduction right now, but they don't want to give right now."

Donor advised funds can also provide tax benefits that private foundations cannot. Real estate donated to a private foundation is valued at its cost basis; real estate gifts to donor advised funds are valued at their current value, which can be higher, potentially providing a bigger tax break.

Easier noncash gifting. Donor advised funds can make noncash gifts easier to handle. Donating appreciated stock, real estate, or collectibles directly to a charity can be complicated, and not all nonprofits can handle all types of assets.

"Boomers can be collectors," Renner says. "Their son or daughter often doesn't have the same level of affinity for Dad's 1950s car collection. So some parents are choosing to donate these assets into the donor advised funds."

A donor advised fund can help sell these assets and distribute the proceeds, often to multiple charities. 

Mark Tosczak has spent 25 years wrangling words for newspapers, magazines, businesses, nonprofits, and other organizations. He focuses on health care, science, and business.

Image by iStock

What can Wells Fargo do for you?

You’re passionate about supporting worthy causes and nonprofit organizations, and Wells Fargo Conversations discusses how you can make the most of your opportunities for giving.

Wells Fargo Philanthropic Services is part of Wells Fargo Wealth Management providing financial products and services through Wells Fargo Bank, N.A., and its various affiliates and subsidiaries.

The Wells Fargo Philanthropy Fund is sponsored and administered by Renaissance Charitable Foundation, Inc. — a qualified public charity.

Wells Fargo & Company and its affiliates do not provide legal advice. Wells Fargo Advisors does not provide tax or legal advice. Please consult your tax or legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared.

This information is provided for educational and illustrative purposes only.

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