Charitable giving is at the core of many of us, especially this time of year. The other day I was having an interesting chat with a friend of mine on just this topic. Next thing you know the conversation shifted to a growing charitable resource called donor-advised funds.
Since he is also a professional colleague, the conversation got a bit nerdy after a while. Truly, there was a flash of insight when I asked him how he uses Donor Advised Funds (DAF). I took it as a moment of brilliance on his part. He described a phenomenal way to involve the whole family in the giving spirit (something very important in my household).
Before I give the secret sauce away, let’s review the characteristics of a DAF.
What is a Donor Advised Fund?
At its core, a DAF is a way to gift money to a charitable vehicle today and still receive all the normal tax benefits. These gifts grow tax free in an investment account. If you want, you can even gift highly appreciated stock. You can request the DAF, at any point in the future, to make a gift to any 501c3 charitable organization. That’s right, you choose. However, keep in mind that once an individual gifts to a DAF the gift is considered irrevocable.
Why the popularity gain?
Donor advised funds are growing at a furious pace. More than a whopping 85 billion dollars have been invested in these vehicles. Their popularity is no doubt tied to their opportunity. An individual can make a current gift to charity, but does not need to select which charity today. People are taking advantage of allowing their funds to grow larger and larger. Then, they can make an immense impact to one charity, or more, at a later time. Not being rushed into a year-end decision is nice. A DAF allows for a more thoughtful process with one’s charitable intent.
How can the family be involved?
My friend whom I referred to earlier involves his family with the DAF giving process. (It’s something I’ll follow his lead on, for sure.) Once a year, he sits down with his children and discusses how much they want to give. He bases the conversation on the account values in the DAF. Together, they go over how the DAF performed in the previous year. This step begins his children’s education about money and investing in an engaging way.
After, they discuss which charities they want to support and why. It becomes a family-wide conversation, while teaching philanthropy. Then, they land on a group decision and settle on an amount (or amounts, if multiple charities). He enjoys seeing the genuine response of his children when they hand over a sizeable check to those in need. (I cannot wait to see this in my children, too.)
Imagine the power in that for a moment. What a valuable life lesson to all our children and grandchildren. What if you even matched dollar-for-dollar the amount they wanted to give to the family DAF? Think of that impact and project it 20, 30, 40 years from now. What kind of difference do you think these children will make on the world, having grown up in an environment like that? Sufficient to say, that is exactly the type of child I want to raise.
I’d like to thank my good friend JA (but don’t let it go to your head!) for introducing this unique way of family charitable giving.
With any holiday season, it truly is better to give than to receive. I hope this idea gives you a fun and engaging way to energize the entire family into the true spirit of giving!