Solus Trust Company Limited Article

Flexible giving through donor-advised funds

Jessica Y. Lo
Lawyer & Estate Planning Manager
Solus Trust Company Limited

Perhaps you have decided that you would like to leave a legacy gift to charity or to donate in the near future. With so many deserving charities out there, what if selecting the particular one(s) to benefit is preventing you from going ahead? Even worse, what if this decision is delaying you from the very important matter of creating or updating your Will? If you are struggling with this, a flexible option to explore is a donor-advised fund (DAF).

A DAF is essentially an account that you set up with a public foundation, under which you choose the charities or causes you wish to support. The built-in flexibility is that you can change your mind on the mix of charities at any time. How it generally works is that you can decide whether you wish to fund your DAF during your lifetime or name it as a beneficiary under your Will (note that naming it as a beneficiary under a life insurance policy or registered assets may also be options).

If you choose to fund your DAF immediately, and each time you add to it, those are considered irrevocable donations to charity for which you will receive donation tax receipts. However, those contributions can then remain invested within the DAF and grow tax-free, amounting to a larger overall gift, while you determine the amounts your chosen charities receive periodically. This can be helpful if, for example, you would like to give back in a financially fruitful year (and offset income taxes) but have not completely decided on the charitable recipient(s) or may wish to vary those later.

Alternatively, if you decide to fund your DAF through your Will, then this would result in a similar donation tax credit for your future estate. A DAF is helpful as it can function like a gift placeholder. For example, if you later change your mind about your selected charities, you can simply update those under your DAF without the expense of updating your Will. Sometimes, easing this decision may help you create a Will sooner for other important reasons such as appointing an executor, supporting loved ones, and appointing guardians for minor children, etc.

In either arrangement, note that assets such as publicly traded securities can also be contributed to the DAF, potentially maximizing tax savings. To see if a DAF is right for you, please consult your legal and financial advisors.

Solus Trust Company

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