In addition, your dividends can be used to fund a donor-advised fund (DAF). This approach might be appealing if you value the long-term planning flexibility offered by a DAF.
Separately, you could fund a DAF with cash/dividends or appreciated stock to receive an immediate tax deduction while planning for future charitable gifts. This strategy can be especially advantageous in years when your income is high.
While DAFs offer significant benefits, there are some potential disadvantages to consider. For example:
- You may lose direct control over donated assets, as the sponsoring organization makes the final decisions on grants.
- Various fees charged by the sponsoring organization can reduce the total amount available for charitable purposes.
- Contributions to a DAF are irrevocable, meaning funds cannot be withdrawn once donated.
- Funds can potentially remain in the DAF for extended periods without being distributed, delaying their impact.
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