Charitable Planning

Posted on Wednesday, September 5th, 2012

Donor advised funds can be an efficient mechanism for charitable giving. In many respects they provide similar results to a private foundation without the required set up costs, publicity, minimum annual distributions, annual tax filings and related excise tax. Donor advised funds (DAFs) are public charities that accept contributions and invest them until the donor decides on which specific charities should receive a gift from the fund. They can be a good solution for a client who needs a large tax deduction in the year of increased income such as the sale of a business, but either don’t know yet which specific charities they want to support, or prefer to distribute the money in smaller amounts over many years. They can also be used for the donor who makes smaller contributions to multiple charities, would like to use appreciated stock due to the tax benefits, but doesn’t want to make numerous stock gifts. Most DAF’s accept gifts of cash and publicly traded securities; some may even accept non-cash assets such as real estate and private equity interests. Thus, a donor can make a gift of stock or stocks at one time to the DAF and then direct the fund to make the smaller gifts to the various charities throughout the year.  Although a DAF account may be established with initial gifts of as little as $5000, most DAFs are well-equipped to administer much larger gifts. Individual contributions to the charities can be made anonymously or in the name of the donor or their family, whichever is desired.  DAF accounts may be created during the donor’s life or through a donor’s will.

Donors receive an immediate deduction for the full amount of their gift (subject to normal AGI limitations that apply to gifts to public charities) even though the funds may not be distributed to the specific charities until later years.  In the meantime, the funds can grow tax-free while invested in the DAF’s investment options at the donor’s direction if so desired.  Schwab Charitable Fund, The Community Fund for Greater Metropolitan Atlanta and the National Christian Foundation, among others, allows donors to name their personal investment advisor for accounts exceeding minimum thresholds.  Typically, a DAF has greater flexibility with required annual distributions in comparison to private foundations or charitable trusts.  As long as 5% of the total of the overall funds administered by the charity on behalf of all of the individual donors is distributed each year, minimum distributions will not be required for individual sub-accounts and with most large funds, this requirement rarely, if ever, is an issue.

In addition to handling all recordkeeping and required filings, many DAF’s offer resources to assist donors in identifying charities that align with their personal values.  A DAF can also provide an opportunity to establish a family charitable legacy as funds can be given a family name with designated successors to continue directing charitable gifts from the account upon the death of a donor.

As we focus on Charitable Giving in our “Seasons of Planning,“ we would be happy to talk to you more about a DAF or other strategies to accomplish your charitable goals.

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