News for Professional Advisors

Recently, when the Sioux Falls area experienced severe flooding, Leif Ericson Day Camp suffered significant damage. In response, donors at the Community Foundation acted swiftly.

Within a week, more than $70,000 of the $100,000 needed for repairs was disbursed from Donor Advised Funds (DAFs) held at the Foundation, underscoring the power and immediacy of DAFs in providing critical support during times of crisis.

Immediate Tax Benefits and Charitable Impact

DAFs allow donors to contribute cash or appreciated assets to a sponsoring organization, such as the Community Foundation. This contribution provides three key tax benefits:

• Income Tax Deduction: Donors receive a tax deduction for their contributions, which can be particularly advantageous in high-income years.
• Avoidance of Capital Gains Tax: By transferring appreciated assets directly to the DAF, donors may avoid capital gains tax, maximizing the amount available for charitable giving.
• Reduction of Estate Tax: Contributions to a DAF reduce the donor’s gross taxable estate, potentially mitigating estate taxation.

Flexibility and Strategic Philanthropy

One of the greatest attractions of DAFs is the flexibility they offer. Donors can establish a DAF and make grants over time, allowing them to defer decisions on which charities to support until the need arises. This is particularly beneficial in disaster scenarios, where the ability to act quickly is crucial.

• Rapid Response: When disaster strikes, having a DAF in place allows donors to respond immediately. The funds are already set aside and can be disbursed quickly to qualified charities, ensuring timely support for relief efforts.
• Strategic Giving: DAFs enable donors to make informed decisions about where their contributions will have the most impact. The Community Foundation monitors grants to ensure they are directed to qualified charities, providing peace of mind that the funds are being used effectively.

Encouraging Clients to Open a DAF

As their trusted advisor, it’s important to highlight the strategic advantages of DAFs to your clients. The ability to provide immediate support in times of crisis, coupled with the significant tax benefits, makes DAFs an invaluable tool for charitable giving and a worthwhile part of their estate planning and philanthropic strategy.