Today, the Wall Street Journal has an interesting article about donor advised funds (DAFs).These are funds where an investor can contribute assets, including highly appreciated stocks, and get a tax write-off. The money or assets in the fund can, in turn, be distributed as the owner wishes. Basically, you get to “stockpile tax deductions,” as the article puts it.
However, there have been some changes in the tax code recently. Starting this year, “charitable donations below 0.5% of adjusted gross income won’t be deductible,” according to the article. That caused many wealthier investors to stuff these funds with appreciated assets at the end of last year, but the trend hasn’t stopped.
Even those who missed the deadline might find it useful to bunch donations into such funds together, according to the article.
Another change in the new tax law limits the tax benefit of itemized deductions for those in the highest tax bracket to 35%. The highest federal bracket is 37%. In other words, a taxpayer in the highest bracket who puts $10,000 in a DAF above the 0.50% hurdle could deduct only $3,500, rather than $3,700.
The possibility of higher hurdles in the future has people opening more DAFs, stockpiling more deductions, and avoiding tax gains on appreciated assets.
There are criticisms that there is no incentive for money to leave DAFs once it is put in them because DAFs do not have to spend some percentage of their money every year the way more formal charities do. There is also no incentive for the asset managers charging fees on the assets to encourage the investors to give the money away.
In total, there were 3.56 million DAFs in 2024 containing $326 billion, according to the article, which cited research from Donor Advised Fund Research Collaborative.
