Not a millionaire? Not a problem. Everyday donors are making a big difference in Nevada County with Donor Advised Funds
“We want to give back, but we don’t know where to start.” Dylan Hendricks, an estate planning lawyer in Grass Valley (and a Nevada County native), hears this a lot. She meets people who want to pay forward some past kindness that they received, solve or address a problem that’s important to them, or just feel a moral or ethical motivation to give. But they feel overwhelmed by the available choices or unclear about the impact of their giving. In this era of federal budget cuts and government shutdowns, it’s hard to know who needs help the most.
A Donor Advised Fund (DAF) through the Community Foundation of Nevada County (COFONC) offers a simple, strategic way to make a lasting difference – and you don’t have to be a millionaire. Hendricks suggests starting a DAF with a modest amount of money. “I like to suggest that people who have other priorities for their money (like providing for their children) consider making a gift that would replace three years of their annual giving,” she said. “That would offer a good sense of stability to the organizations that are relying on their repeat donors.”
What Is a Donor Advised Fund? (DAF 101)
A DAF is like a charitable giving account. You contribute now (and get the tax benefit), then recommend grants to nonprofits over time. You can even pass this decision making on to your kids. DAFs have myriad benefits:
- Immediate tax deduction: When you contribute to a Donor-Advised Fund (DAF), you receive an immediate tax deduction, even if you distribute the funds to charities at a later date.
- No capital gains on appreciation: You can contribute long-term appreciated assets (held for over a year) to a DAF without incurring capital gains taxes on the appreciation.
- Tax-free growth: Once the funds are in your DAF, they can be invested and grow tax-free, increasing the amount available for grants to charity over time.
- You choose how to invest: You have the ability to recommend how these funds are invested (within the sponsor’s available options), and all investment returns remain within the DAF, supporting further charitable giving.
- One fund to manage: Investing in a DAF allows you to support the causes you care about without the administrative burden of managing multiple donations, receipts, or endowments..
When Does a DAF Make Sense?
DAFs make sense when you receive a financial windfall. For example, if you sell a house with a tax basis of $200,000 for $500,000, you might pay taxes on $300,000 of capital gain. If you donate it to a DAF, you could avoid the gain and get a tax deduction for the market value (subject to any applicable limitations).
DAFs are also appropriate for those who want to ensure that their legacy continues to support causes that are important to them, even after they are gone. Another scenario where DAFs can be helpful is where people are new to a community and unsure what the local nonprofit landscape looks like, or how to vet nonprofits. A community foundation familiar with local nonprofits can advise, or help donors figure out over time where the DAF money will have the most impact.
Why Open a DAF with COFONC?
Community foundations are a great place for new community members to get an introduction to the local charitable scene. “ We are so fortunate to have a huge number of charitable organizations, but it can be overwhelming to get to know and assess them all,” said Hendricks. “I have been back in the community for 12 years and work actively in the charitable community, and I still learn about new organizations and initiatives all the time.”
COFONC has an intimate understanding of the local nonprofit landscape through the Center for Nonprofit Leadership (CNL), a COFONC program that has been strengthening the nonprofit sector in Nevada County and the Sierra Nevada region since 2003. CNL has their finger on the pulse of Nevada County’s nonprofit community with a clear, up to date view of who is doing what, so they can help your gift reach the right place now and over the long term. Organizations change, based on leadership and funding. COFONC can ensure your gift still meets your intent as community needs evolve.
Open a DAF with the Community Foundation of Nevada County
Ready to simplify your giving and amplify your impact in our community? Contact us to explore whether a Donor Advised Fund is right for you.