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Suite 3535, 30 East 7th
Street, St. Paul, MN 55101 PHONE: (651) 829-3300 FAX: (651) 839-3301 WEB: highmarkwealth.com
Charitable Giving – Donor Advised Funds
Todd E. Arens, CRPS® AIF®
[email protected] highmarkwealth.com
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.
What are DAFs, and how can having one benefit you?
How a Donor-Advised Fund Works
Suite 3535, 30 East 7th
Street, St. Paul, MN 55101 PHONE: (651) 829-3300 FAX: (651) 839-3301 WEB: highmarkwealth.com
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.
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.
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.
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.
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.
Advantages
Proactive:
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.
Suite 3535, 30 East 7th
Street, St. Paul, MN 55101 PHONE: (651) 829-3300 FAX: (651) 839-3301 WEB: highmarkwealth.com
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.
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.
Easy Start-Up:
They are simple to create and do not require the involvement of an attorney.
Suite 3535, 30 East 7th
Street, St. Paul, MN 55101 PHONE: (651) 829-3300 FAX: (651) 839-3301 WEB: highmarkwealth.com
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.
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 usually is usually quick and
easy for the donor.
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 give you the
opportunity to make giving tax free and very easy.
Todd E. Arens, CRPS® AIF® [email protected]
highmarkwealth.com 651-829-3302
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Suite 3535, 30 East 7th
Street, St. Paul, MN 55101 PHONE: (651) 829-3300 FAX: (651) 839-3301 WEB: highmarkwealth.com
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© HighMark Wealth Management July 2014
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