Is Donor-Advised Fund Good Idea?

[samclem]

Sounds like the local organizations would have a huge "expense ratio" if compared to a DAF account invested in a stock fund.

?? My local foundation charges zero annual fees. Are you referring to the fact that the funds are in a non-interest bearing account rather than invested in stocks? If so, I suppose thats one way to look at things--but then people who have their money in CDs have a "huge 'expense ratio'" compared to those who have their money in equities?
In the case of our local foundation, the money I donated is in a bank and the foundation gets the (pitifully small) interest. But I agree this might not be the best answer for somebody who wants to "give now" (as far as the IRS is concerned) and park the money for many years before disbursing it.

 

[MooreBonds]

I suppose the same can be done with a mutual fund company. Contribute to the DAF and disburse the funds immediately, like LOL! suggested above.

DAF's typically have a minimum balance. So if you suddenly contributed their minimum to open an account, then turned around and emptied it out, they would start to catch onto your tactics after 1-2 years.

But even more importantly....why even bother with a DAF if you are going to immediately donate all of your money that you put in each year You get the same tax deduction on Schedule A.

 

[FIREd]

DAF's typically have a minimum balance. So if you suddenly contributed their minimum to open an account, then turned around and emptied it out, they would start to catch onto your tactics after 1-2 years.

But even more importantly....why even bother with a DAF if you are going to immediately donate all of your money that you put in each year You get the same tax deduction on Schedule A.

This was my answer to people who are allergic to paying fees to DAFs. And going through a DAF might still offer some advantages like the ability to make anonymous donations. That's is not how I use my DAF.

 

[JoeWras]

DAF's typically have a minimum balance. So if you suddenly contributed their minimum to open an account, then turned around and emptied it out, they would start to catch onto your tactics after 1-2 years.

But even more importantly....why even bother with a DAF if you are going to immediately donate all of your money that you put in each year You get the same tax deduction on Schedule A.

I asked the CSR at Vanguard charitable about this, and they ask you to follow their March 1 minimum rule. Their rule is to have a minimum balance on March 1, otherwise fees are charged or the account is closed. Go down to zero then replenish to the minimum on March 1, and you are OK. Fidelity has similar rules. Vanguard's ongoing minimum is less than the initial contribution minimum too.

For Vanguard, initial is $25k, ongoing is $15k on March 1. Below that will cause a $100 charge per year, but there's nothing stopping you from letting it drain way low if you accept the extra charge. You could conceivably let it ride with a few hundred bucks. (Would be stupid, but you could.) They'll close the account if it goes to zero on March 1.

Frankly, it would be a lot of work to replenish, say, each Feb 25th then empty it on March 5. Especially for $15k at a crack. There's some fine print in the the account agreement where I suppose they could close it for your continued abuse. The whole thing sounds like too much work for nothing though. Just contribute directly.

Now, why do I bother with a DAF? Because it is easy to donate my equities, especially my Vanguard assets. It is more painful to do so directly to my charities. Sure, they handle it, but somewhat asynchronously. I can also give set amounts to my charities, while with donating securities, I never know exactly how much they'll get, based on all the weird timing.

With the DAF I can disconnect my equity donation from my charity designations, which I really like.