Charitable Giving - Donor Advised Funds

Charitable Giving Donor-Advised Funds

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Donor-Advised Funds

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Donor-Advised Funds

The first donor-advised funds (DAF) were first created in the 1930’s, although Congress did not authorize a legal structure for them until 1969. The popularity of donor-advised funds began in the 1990’s and continued to grow steadily in recent years and right through the economic recession.

History




Donor-Advised Funds

What are DAFs, and how can having one benefit you?




Donor-Advised Funds

Definition: A DAF is a private charitable giving carrier administered by a third party created for the purpose of managing charitable donations on behalf of individuals, families, and organizations.




Donor-Advised Funds




Donor-Advised Funds

1. You make an irrevocable contribution of your personal assets.• In any given year, you are allowed to setup and contribute to a DAF.• Rather than making a donation directly to a non-profit, you are contributing

to the fund.• You decide who to give the donation to your charity of choice any time

thereafter.

Contribution




Donor-Advised Funds

2. You immediately collect the maximum tax-deduction. • This will qualify for a tax deduction only in the year you contribute.• The tax-deductible contribution amount can be up to 50% of your adjusted

gross income (AGI). For publicly traded securities and other appreciated assets your tax deduction limitation is 30% of AGI, generally deductible at fair market value.

Tax Deduction




Donor-Advised Funds

3. Your contribution will be placed into a donor-advised fund account where it can be invested and have tax-free growth.• The fund investments can grow tax free; however, there are

minimal fees involved. There is no guarantee of investment growth.

• You will recommend the DAF account’s investment options based on a variety of programs.

• Contributed assets will be managed by you or your financial adviser.

• Any investment growth inside your DAF is tax free.

Investment




Donor-Advised Funds

4. You can now at any time recommend grants from your donor-advised fund account to the qualified charities of your choosing. • Once you have contributed to the fund, it is then overseen by a nonprofit

sponsor organization (generally a financial firm), and you are not allowed to make personal withdrawals from the DAF. Instead, you “advise” (or direct) the sponsor organization where to send the grants.

• You recommend grants to IRS-qualified public charities, also known as 501(c)3 organizations.

Grants




Donor-Advised FundsAdvantages

Proactiveness:They promote proactive gift strategy, planning, and giving.

Types of Assets Accepted:They open the door for you to contribute certain assets beyond cash equivalents or publicly traded, appreciated securities. For example, privately held C-corp or S-corp shares may not accepted by some charities.

Multiple Charities:DAF accounts enable you to support many charities, at any time, with just one contribution.

Anonymity:Since gifts come directly from the fund, they offer the opportunity for anonymity.

Reduce Urgency:They can reduce the urgency to find the right nonprofit or charitable cause within a certain time frame, while still allowing you to take an immediate tax deduction in that given year.

Scheduling Disbursements:You make the contribution in the year you choose and then decide when the disbursements will happen on your own schedule.





Cont.Record keeping:Consolidates your record keeping and streamlines your tax receipts, all in one secure online location.

Allocating Funds:They create a framework for allocating funds for future giving without a lot of administration.

Estate Planning:They are a valuable estate planning tool to support your legacy goals.

Efficiency:They are more flexible than private foundations, which generally require a set amount of payout every year. Private foundations also require more reporting and generally have higher administrative costs.

Investment Options:They provide a vast array of investment options, including a plan that permits donors’ investment advisers to manage charitable assets on the client’s behalf.





Cont.Easy Start-Up:They are simple to create and do not require the involvement of an attorney.

Tax Deductions:DAF allows you to take an immediate tax deduction for your contributions – separating the timing of your charitable support and your tax deduction.




Donor-Advised Funds

• Most donor-advised sponsor organizations require a minimum investment, generally between $5,000 and $10,000; others may have a higher required minimum investment.

• In general the fees are set based on the total assets invested. • Check with your financial adviser about these specifics before you decide which

DAF to use. • Once you start contributing to the fund, the sponsor organization will help you

set up and transfer assets. This process is usually quick and easy for the donor.

Things to Know






Donor-Advised Funds

Attention and Diligence• At first Donor-Advised funds require some attention and

diligence. • It will be helpful for you to know some of the limitations and

potential challenges with DAFs. • Your financial adviser should be able to guide you in the right

direction for your situation.






Donor-Advised Funds

If you have any questions regarding your charitable giving process or other financial matters please call 651-829-3300 or email [email protected]


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Donor-Advised Funds

Past performance does not guarantee future results.

Diversification does not guarantee investment returns and does not eliminate the risk of loss.

Opinions offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice.

© HighMark Wealth Management July 2014

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Charitable Giving - Donor Advised Funds