Home/What Is A Charity?

What Is A Charity

A Donor Advised Fund is a fund that a sponsoring charity, like the National Outreach Foundation (NOFI), creates through a written agreement with a donor. It is not a separate legal entity like a trust or a corporation. The donor contributes assets to NOFI, which agrees to treat those assets as a separate fund on its books. The assets belong to NOFI, but the donor retains the privilege of recommending charitable grants from the fund. The law requires NOFI to make clear in the agreement that the assets in a Donor Advised Fund are the property of NOFI and that NOFI has discretion and control over the use and investment of the Donor Advised Fund assets.

The primary benefit of a donor-advised fund is that it allows the donor to donate assets to charity today and receive a tax deduction at the time of donation, even though the actual donation may not be granted to the final charity until sometime in the future.

The donor-advised fund functions as a conduit, where the donor receives a tax deduction when the money goes into the DAF but has discretion about when the assets will be distributed to the final charity. In the meantime, assets inside a donor-advised fund grow tax-free.

Given the ability of a donor-advised fund to separate the timing of the contribution and tax deduction, from the final donation to a charity, the most common strategy for using a donor-advised fund is to “front load” charitable contributions in a high income year, when the tax-deduction threshold will be higher, and then use the DAF to make subsequent distributions to the charities in the future. By doing so, the donor can maximize the value of the tax deduction in a high-income year but retain the flexibility to decide which charities the funds will actually go to in the future.

The donor-advised fund as a vehicle also provides a mechanism for other charitable giving tactics. The donor-advised fund can facilitate giving anonymously. The DAF can also help facilitate donating appreciated securities to a smaller charity that doesn’t have the means of handling the donation directly. The donor-advised fund functions as a less expensive alternative to a private foundation, providing a means for the whole family to engage in the process, while allowing the tax-free growth of a family’s charitable legacy.

Our donor advisors are important members of our foundation family, as advised-fund grants are a significant source of support to the vital nonprofits serving our community, our state, and our nation. Donor Advised Funds afford donors the opportunity to support cherished causes and local needs in an informed, active way without incurring the paperwork and expenses of maintaining a private foundation. Donor Advised Funds are convenient, flexible tools for individuals, families, and businesses wishing to be personally involved in their philanthropy. The fund allows the donor to:

  • Make irrevocable contributions to the fund;
  • Take an immediate federal income tax deduction to the extent allowed by law, subject to individual limitations;
  • Recommend grants to IRS-qualified charities at any time; and
  • Potentially increase charitable giving in the community through professional investment management of the fund.

Contributions to a Donor Advised Fund at NOFI are immediately tax-deductible to the fullest extent allowed by law, subject to individual limitations. Contributions may be made at any time, while grants may be recommended to IRS-qualified charities on a separate timetable in keeping with the donor’s charitable goals. Assets in the fund are professionally managed and have the potential to grow over time, providing greater support to cherished causes and critical community needs.

What are the differences between a donor-advised fund (DAF) and a private foundation? A private foundation is an organization controlled by its founder and directors. It is a distinct legal entity with its own character, mission, and bylaws. A DAF, on the other hand, is a giving account, like a bank account, that is held in a community foundation or a public charity. All legal control over the account rests with the sponsoring organization, not the donor.