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Donor-advised funds offer a charitable way to harvest a tax break and are growing in popularity

Andrew Maykuth, The Philadelphia Inquirer on

Published in Home and Consumer News

After charities experienced a gangbuster year in 2021 with record donations, philanthropic experts say that charitable giving is likely to plateau or decline this year after the stock market's prolonged downturn.

Even though the generosity of Americans may be diminished somewhat by the market's misfortunes this year, an increasingly popular tool for maximizing the tax benefits from charitable deductions is still attracting interest.

The number of donor-advised funds (DAFs), the charitable vehicles sometimes referred to as a "poor man's foundation," has nearly tripled to 1.3 million since Congress approved the Tax Cuts and Jobs Act in 2017, which dramatically reduced the need for many taxpayers to itemize their annual returns.

Americans contributed $72.7 billion to DAFs in 2021, up 47% from the previous year, according to the National Philanthropic Trust (NPT), a Jenkintown, Pennsylvania, charity that sponsors the accounts and also tracks the national DAF sector.

DAFs contained $234.1 billion in assets at the end of 2021 and made $45.7 billion in grants to individual charities last year, said Eileen R. Heisman, president of the trust, which analyzes the public tax filings of about 1,000 fund sponsors in its annual DAF Report.

"These were the most dramatic increases we've had in years," said Heisman, who said her initial reaction to the tally was disbelief until the researchers assured her the figures had been double-checked.

 

Heisman said many donors were induced to donate more of their wealth in 2021 after the prolonged bull market had increased their exposure to capital gains taxes

Is a DAF right for your charitable giving? Here's what you need to know about the funds.

What are donor-advised funds (DAFs)?

DAFs are a way for taxpayers of any means to group charitable contributions into a single year to reap tax benefits, and then to distribute the funds to their favorite charities over time.

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