By Eric Kinaitis
The vast majority of assets donated into donor advised funds (DAFs) are the publicly traded investments that all financial advisors are well familiar with such as company stocks and mutual fund shares. Their ease of use as a funding source make them the prevalent choice.
However, there are other alternative assets/investments that have grown as a sizable choice of charitable funding in recent years. For clarity, alternative investments are defined as the following:
- Is not a conventional asset such as publicly traded company stock, or shares of mutual funds and ETFs
- Are not usually regulated by the SEC
- Tend to be illiquid
- Private equity, hedge funds, venture capital, commodities, derivatives contracts, real estate, LLCs, limited partnerships, and life insurance policies are common examples of alternative investments.
At American Endowment Foundation (AEF), we have built a long history of expertise in being able to turn alternative investments into a managed asset that financial advisors and their clients can put to use within their donor advised fund. As example, in 2020, alternative investments valued at over $170 million funded charitable good across numerous AEF funds. Let’s look at some of these alternative asset types:
– Closely held Stock: By definition, closely held stocks are shares of a corporation where a small number of investors possess most of the shares. S-corps, C-corps, and LLCs are examples of such business ownership types. At AEF, the typical scenario we witness is a business owner looking to retire from their business. The DAF, with select third parties, becomes an effective transitional tool allowing them to sell these closely held shares but do it in a way that is tax-smart.
– Life Insurance: Life insurance policies are one of the more unusual alternative investments for the fact that many donors and their advisors would not normally regard a life insurance policy as an option to fund charitable giving. However, life insurance provides a surprising array of innovation in being a funding source for DAFs.
– Real Estate: Real estate is an interesting paradox; it represents nearly 43% of America’s total wealth, but only 3% of its charitable giving. Why? Knowledge – most charitably-minded persons ( and the advisors who serve them) are simply not aware of real estate as a powerful source of charitable assets.
– Gold & other mineral rights and royalties: It is not uncommon for those with ownership of gold to use such an asset for charitable gifting. Additionally, mineral rights and mineral royalties also can be used as an asset class for charitable good.
– Agriculture: One of the most innovative ways that donors are able to put assets to use for charitable giving is through the means of donating agricultural commodities, such as gifts of grain. Although the circumstances may clearly be limited to farmers, ranchers and others involved in agriculture, the process underscores the innovative strength of an AEF DAF in turning an asset into charitable good.
– Cryptocurrency: With the growth in value and interest, cryptocurrencies such as bitcoin have grown as an acceptable source of charitable grant making.
Regardless of circumstance, the financial advisor , their client, and AEF can work together in discussing alternative assets that can be held within an AEF DAF. At American Endowment Foundation, we look forward to helping donors and advisors determine the best strategies for their charitable giving. Please contact us or call at 1-888-966-8170 with any questions.