Better Than Bequests: Using a Donor Advised Fund

By Eric Kinaitis

For many people, the thought of what to give often is synonymous with the concept of bequests. Someone not providing assets to charity until after their death is certainly pragmatic, since those assets would no longer be needed to support the donor’s living expenses.

However, if that process were the only consideration for a donor and their charitable giving, they may miss out on the satisfaction of watching their charitable dollars making an impact while they are alive to see the good that is generated.

Through the use of charitable planning, a donor and their trusted advisor can work together and determine:

1. The causes the donor likes to support
2. The dollar value the donor normally gives in an average year
3. What assets the donor uses to make those annual donations (cash, stock, land, etc.)
4. How much of the donor’s estate value would they be willing to commit on a bequest basis

By engaging in this discussion, a donor can engage in “giving while living” through a donor advised fund (DAF) in ways that prove to be tax-smart. Donors using a DAF can enjoy 5 specific tax savings:

1.) Income Tax Deduction: The donor receives an immediate tax deduction in the year they contribute to their DAF. Since donor advised funds must be administered by a public charity, contributions made to a donor advised fund immediately qualify for maximum income tax benefits. The IRS does mandate annual limitations, depending upon the donor's adjusted gross income (AGI):

• Deduction for cash – up to 60 % of AGI.
• Deduction for securities and other appreciated assets – up to 30 % of AGI.
• There is a five-year carry-forward for unused deductions.

2.) Capital Gains Tax Avoidance: The donor will incur no capital gains tax on gifts of appreciated assets (i.e. securities, real estate, other illiquid assets).

3.) Alternative Minimum Tax (AMT) Reduction: If the donor’s income is subject to alternative minimum tax (AMT), the contribution to their donor advised fund will reduce their AMT impact.

4.) Estate Tax: Your DAF will not be subject to estate taxes.

5.) Tax-Free Investment Appreciation: The investments in the DAF appreciate tax-free, providing the donor additional funds that they can use for charitable gifting.

Of interest to financial planners, assets held within a DAF investment account can be managed by them on behalf of their donor client. Another factor which may not be initially realized, is the fact that illiquid assets such as S-corp shares, real estate , or life insurance policies held within a DAF investment account help increase the assets under management  that the advisor is responsible for.

Contact or call us at 1-888-660-4508 and let us discuss how a donor advised fund can help donors “give while they live.” We look forward to discussing your needs and interests in greater detail.