Donor Advised Funds: A Smart Way for Organizations and Employees to Give Back

Key Takeaways

• Donor advised funds (DAFs) provide an accessible way for companies and their employees to pursue their philanthropic goals.
• Donating to a DAF may be useful in years when donors are seeking a charitable deduction³ but want more time to finalize a giving strategy.

Today’s employees live their values—and they expect their employers to do the same. In fact, 93% of employees believe companies should lead with purpose,¹ while 55% say they would accept a lower salary to work for a socially responsible company.²

These expectations have begun influencing the way organizations think about charitable giving, opening the door for companies and employees alike to pursue their philanthropic goals with a donor advised fund (DAF).

What Are Donor Advised Funds?

DAFs allow donors to donate cash or other financial assets to a fund that is typically managed by a public charity or community foundation. Like most charitable donations, donors may be eligible to receive a tax deduction³ for the full amount of their contribution in the year the donation is made.

What makes DAFs unique, however, is that donors get to recommend how their funds will be allocated to their chosen charities over time. This allows donors who itemize deductions to potentially benefit from an immediate tax deduction even if the assets contributed are not immediately distributed to charities.

This feature makes DAFs optimal vehicles for donors planning to give to charity before the end of the year, but who:

• Need time to develop a more thoughtful and impactful giving strategy before deciding where to ultimately direct those assets.
• Would like to donate to several different causes over the course of many years.
• Prefer to give to qualifying charities, including tax-exempt public nonprofit organizations and U.S. religious organizations, in installments over time.
• Want to involve family members in their strategic giving by naming a successor to manage their giving plan when they can no longer do so.

Here’s how it might work in practice. Let’s say a donor holds securities that have appreciated significantly. In donating the securities to a DAF, the donor doesn’t trigger the potential capital gains tax on the appreciation, while giving them time to decide when and where to make their charitable gifts. Between the time they donate to a DAF and when they finalize their giving strategy, the donated assets can be invested, with the potential to grow tax-free.

Two Types of Giving Accounts

Although DAFs may be structured in a variety of ways, the Morgan Stanley at Work Charitable Giving Program features two types of giving accounts that can support both your company’s philanthropic objectives as well as individual employee giving:

• Corporate Giving Account. Companies seeking to promote their philanthropic priorities and benefit from the potential recruitment and retention of philanthropic-minded employees may be interested in opening a DAF account, contributing corporate assets and either recommending how to invest the funds directly or allocating rewards that allow their employees to recommend how the funds are used.⁴ Although employees who recommend donations for their employer’s contributions are not eligible to receive a tax deduction for those donations, this type of account gives employees the opportunity to influence how corporate funds are allocated to charity.
• Individual Giving Account. These accounts make DAFs more accessible to your workforce by enabling the employees of your choice to open their own individual giving account with a minimum contribution of $250. With a few simple clicks, employees can allocate their account balance across nine investment models, based on their risk tolerance and personal preferences. They can also choose from multiple investment options, including two specifically designed by Morgan Stanley’s Investing with Impact team to advance environmental, economic and social goals.⁵

A digital donation portal also makes it easy to open and manage a giving account. The portal allows participants to view their account and grant history, access tax information, set up granting preferences and track investment performance over time.

Is a Donor Advised Fund Right for Your Organization or Employees?

Although DAFs may not be right for every company or employee, they may offer a good fit for individuals seeking to maximize their annual charitable contribution without the need to finalize their giving strategy.

In addition to providing flexibility in charitable planning, a DAF simplifies record-keeping by allowing donors to track the donation to a DAF rather than multiple donations.

Our Charitable Giving offering is designed to help make workplace giving simple and seamless. To learn more about implementing workplace charitable giving at your company, reach out.