Donor Advised Funds

I have many clients who have charitable hearts and follow their values with giving of their time, talent and treasure.  As an advisor, it gives me tremendous gratification to help align their values with their wealth planning. 

We all know that we can give directly to any charity or organization that we want to.  If the charity is a qualified 501c(3) organization (a tax-exempt status defined by the IRS), the donation may be tax-deductible.  With the Tax Cuts and Jobs Act of 2017, many tax filers no longer have itemized deductions that are greater than the standard deduction that they automatically receive when filing their tax returns.  If however, you have substantial income or a capital gains event such as the sale of a business or a piece of real estate, and you are charitable, you may wish to consider a establishing and funding a Donor Advised Fund in the same tax year.  The strategy can also work by donating a highly appreciated asset.  In a nutshell, here is how it works.

A Donor Advised Fund, or DAF, is set up with a qualified sponsor. The “donor” makes a substantial contribution to the fund.  I’ve had clients ranging from five to seven figures for their donations in a given year. The client, or “donor” receives a tax deduction for the full amount that they contribute to the fund, because it is a completed gift, meaning that the donor has given away that money.  It is an irrevocable decision.  The money is invested for the opportunity to grow tax-free. The donor, or person who gave the money, has the ability to select qualified 501c(3) charities to which they wish to give money from the DAF to, whenever they wish to do so.  The donor submits their request to the DAF where it is reviewed to be sure the charity meets the federal requirements and is in good standing to receive the donation.  The request is then processed and money is sent to the charity that was selected by the donor.  This process can be done anonymously or with the name of the original donor acknowledged. 

I have clients who have involved their family in the decision making process, giving their adult children the opportunity to research a charity of their choosing and have a say in where the family’s legacy is going.  I have helped set up other DAFs which intend to send money to one charity in perpetuity, or until the Donor Advised Fund is exhausted, such as monthly payments automatically made to their church.

There are so many cool aspects to DAFs.  A donor has only one receipt to keep track of:  to the DAF.  Grants, or donations from the fund, may be made to many charities on the schedule the donor wishes, with the donor receiving the tax deduction up front.  We have set up a DAF for a client who is donating shares of stock from their portfolio that we’d set up a couple of years ago.  The purchase price of the stock was approximately $9,000 and over time, it had appreciated to north of $30,000.   The client does not pay capital gains tax since they are donating the stock (rather than cashing it out and donating the cash), and receives the deduction for the full $30,000.  Clients can even name their DAF as the partial or full beneficiary of their IRA, leveraging further tax advantages. 

If you are charitable, wish to give a highly appreciated asset or receive a large tax deduction from a substantial donation, consider a Donor Advised Fund.

LouAnn Schulfer of Schulfer & Associates, LLC Wealth Management can be reached at (715) 343-9600 or louann.schulfer@lpl.com TheWealthInformationLady.com  SchulferAndAssociates.com , or louann.biz

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This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. 

This is a hypothetical example and is not representative of any specific investment. Your results may vary.