One Thing Is Not Like The Other: Donor-Advised Funds and Charitable Trusts
Apples and Applesauce
Charitable giving is close to many hearts. Various strategies can make charitable giving easier and more effective. Recently, I came across an article that made me cringe inwardly. The title: "Smart Charitable Giving That's Easy and Cuts More of Your Taxes Than The 'Write A Check Route'". Donor-advised funds (DAFs) are the focus of this article. Donor-advised funds are becoming a more popular giving vehicle. More and more articles are being written on DAFs. However, as in this article, there is misinformation, such as the following, being published:
"Here’s a smart way to make charitable donations that’s easy and cuts more of your taxes than the regular “write a check, take a tax deduction” route. The tool I recommend is called a Charitable Trust (sometimes also called a Donor Advised Fund)."
A charitable trust and a DAF are not the same. While discussing this article, Melodie, Legacy's President and COO made the comment "all applesauce are apples but not all apples are applesauce". In other words, a DAF can operate as a trust but a trust cannot be a DAF.
Let's go through the similarities and differences of DAFs and Charitable Trusts:
Common charitable giving tools
Any asset can be given
Can be used as a vehicle to give to other charities
Donations to DAFs and Trusts may be tax-deductible up to 60% AGI (adjusted gross income
A trust is a separate legal entity
Trusts are controlled and managed by the appointed Trustees
Charitable Trusts may have multiple beneficiaries, including charitable and non-charitable parties
Changes to a charitable trust require an attorney and may be either costly or prohibited by applicable law once finalized
A DAF is an account that may be sponsored by a trust or another organization
DAFs can only give to qualified public 501(c)(3) organizations
Donors maintain advisory rights to their DAF
DAFs allow for changes to be made at any time
Once set up, the language of the trust determines what may or may not be changed. Often, a DAF will be made the charitable beneficiary of a trust. As a result, the trustee can make changes to or update the DAF as needed.
Apples vs. Applesauce: Which is Which?
I have come to the conclusion that finding accurate information in this day and age can be compared to trying to drink from a firehose. While I may get some water, most of the water will miss the mark. Society is bombarded with constant information thanks to the rise of technology and social media.
Since 2001, Legacy Global Foundation has been helping people with charitable giving by providing accurate and up-to-date information.
Have a question about Donor-Advised Funds or Charitable Trusts? Chat with us or contact us at email@example.com!