Is a Donor Advised Fund (DAF) really worth it?

[ryanf1475]

Hello, and thanks in advance for your reply. I have been reading about donor-advised funds (DAFs), but I'm failing to see any real advantage. I understand how "bundling" works, but I could also bundle directly to charities with the same effect of maximizing my giving, right? It seems the only difference is that charities will get the donation in a lump sum in one year, rather than evenly distributed over two years. And I'm supposed to pay the DAF a management fee to let me do this? It seems that the real benefit people like with a DAF is that they get to control the money for longer, and when they eventually advise its disbursement after continued appreciation, it feels like they're donating more? But in reality, they could have donated the same potential value to the charity earlier, giving up control and letting the charity invest the money (presumably at least some of it)--also tax free--and they will never know how much their contribution appreciated (or depreciated). What am I missing here?

 

[adjusterjack]

Sounds like a scam to me.

donor advised funds scam at DuckDuckGo

 

[Taxing Matters]

While some might be worthwhile, there are a lot of them that are scams or set up to achieve something other than what is intended. The IRS is aware of this, stating:

The IRS is aware of a number of organizations that appeared to have abused the basic concepts underlying donor-advised funds. These organizations, promoted as donor-advised funds, appear to be established for the purpose of generating questionable charitable deductions, and providing impermissible economic benefits to donors and their families (including tax-sheltered investment income for the donors) and management fees for promoters.​

There is little effective regulation over these funds, which make them ripe for abuse. It's not something I would advise any of my clients to use at this time until DAF actions are better regulated and controlled.