Ways to Use Donor-Advised Funding to Make Impactful Investments

Photo of author

(Newswire.net — May 9, 2020) — The use of donor-advised funding is an efficient way of creating an impact in the community. It’s a charitable setup and plays a critical role in helping donors to make donations. With donor-advised funds (DAFs), many can easily give small amounts of money to charities and are sure of their privacy and anonymity. 

Things you need to know about donor advised funds

What is a donor advised fund? This is a separate account that helps donors to fund their favorite charities. It’s set up by different organizations, such as existing charities and financial firms. For the DAF account, donors can quickly identify and recommend grants to charities. Most donor funding programs can as well accept donations and appreciated securities, and liquidate the assets tax-free to get the full market value. 

What should you do to use advised donor funding?

1. Clearly understand how donor-advised funding works.

Donor-advised funding is a potent tool that enables families to fund charities. And how does this happen? It’s through an organization that later channels the donations to the right charities. This way, you get tax exemption as the donor and also have advisory privileges over the fund investment. As the donor, you need to understand all this before making donations. And this will make the entire process easier.

2. What about the legal aspect?

Although less stringent legal rules govern public charities, it’s wise for donors to understand all the legal aspects regarding donations and selection of charities. For instance, DAFs have no minimum distribution requirement and should handle all administrative matters concerning the funding. They should as well ensure that funds are channeled rights and used for the right charity purposes.

3. Know the types of investment

There are different terms used in charitable giving, and you should familiarize yourself with most of them. These include philanthropic investments, prudent investments, distribution and mission-related programs, financial, first impact, market rate, and many more. All these have different meanings and are some of the investments you can make using DAF.

Here are more elaborate meanings to guide you:

Prudent, non-impact investment – This is a type of investment governed by the investor laws of the state without considering the impact.

Prudent impact investment – These investments should follow the state investor laws but are given with the intent to make an impact.

Charitable impact investmentCharitable impact investments should meet all the IRS charitable regulations and make impacts as per these regulations.

Charitable non-investmentThese are grants in the form of gifts or generous donations given with an intent to generate impact rather than financial returns.

4. Know the steps to follow

There are various places to get information on the best practices. Foremost, communicate with donors who are actively impacting the community and, if possible, join membership groups. Seek information on many organizations that have accomplished impactful charitable missions and reach out to them. 

The bottom line

Donor-advised funding is an excellent way of giving to charities without the need to bother about taxes or the management of funds. The DAF handles all the administrative tasks and makes it easy for donors to give their selected charities.