Further to our blog post on the tax deductions of US & UK charitable contributions, philanthropy expert, John Canady, from the National Philanthropic Trust UK writes about donor-advised funds and the organisations set up to comply with both US and UK tax regulations. 

5 Reasons to use a DAF for Tax Effective Giving

Are you interested in simplifying your charitable giving?  Are you sure you are giving in the most tax efficient way?  Now the fastest growing charitable giving vehicle in philanthropy, a donor-advised fund (‘DAF’) may be right for you.

Donor-advised funds are like charitable savings accounts:

• You open a DAF account and give it a name (e.g. The Smith Family Foundation)
• You then donate assets into your DAF account (cash, appreciated shares, property are common) and receive tax recognition for your donation when the assets are donated to the DAF account
• You may recommend investments to grow the balance in your DAF account
• When you are ready, you recommend grants from your DAF account to support any qualified charity.

DAFs growth in popularity may be attributed to several benefits:

1.     Convenience

You no longer need to track receipts from multiple charities.  You get the charitable tax deduction when you make a contribution to your DAF account and can then support various charities from the DAF account.  All of your giving can be managed centrally. You also have the confidence that the charities you support have been vetted by the DAF provider.

2.     Donating securities and other types of assets

Charities are not always able to accept assets other than cash.  With a DAF, you may donate other types of assets.  The smartest donations often aren’t cash.  For example, if you have appreciated shares in your portfolio, you may donate the shares to your DAF account, eliminate the capital gains tax liability and write off the market value of the shares on your income tax return.

3.     Immediate tax benefit, payout flexibility

For many, the idea of ring-fencing an amount of capital for future giving is appealing.  The pressure of deciding which charities to support can be overwhelming when you receive a large bonus, inheritance, or go through a liquidity event.  With a DAF, you may contribute assets to your DAF account when it makes the most sense from a tax planning perspective and then decide later which charities to support in your own time.

4.     Discretion and privacy

When you recommend grants from your DAF account to a charity, you may choose whether you wish to be identified or remain anonymous.

5.     Providing a legacy

Many donors use DAFs to engage their children and family to discuss charitable giving as a family.  You may list your DAF account as a legacy bequest in your will and you may name the successor advisors on your DAF account for the next generation.

Dual US/UK taxpayers should consider using a US/UK ‘dual qualified’ DAF.  A dual qualified DAF is recognised as a charity by both US and UK tax authorities simultaneously.  While donations to a 501c3 can be written off of your US taxes (but not your UK taxes) and donations to UK charities can be written off of your UK taxes (but not your US taxes), a dual qualified DAF allows donors to receive tax credit for their contributions in both the US and UK.  Don’t leave valuable tax benefits on the table by not giving through a dual qualified DAF.

National Philanthropic Trust UK is a provider of US/UK ‘dual qualified’ donor-advised funds.  NPT-UK is affiliated with National Philanthropic Trust, the largest independent national provider of donor-advised funds in the United States.  Contact them for more information.