Charitable Giving Using A Donor Advised FundSubmitted by Castlebar Asset Management on November 14th, 2013
November is a month that many American give thanks for the blessings that they have. It is also a time of year that we review our charitable giving heading into year end. In 2012 alone charities in the US received over $316 billion in charitable contributions according to School of Philanthropy at IUPUI.
There are several reasons for individuals to donate to philanthropic groups. The two most prominent are we are trying to support a cause we care about or we are giving to receive a tax deduction. The federal government allow donors to take up to 50% of adjusted gross income for cash contributions and up to 30% for investment securities. Most of us just a write a check to charity that we want to donate to but there some other ways to make a charitable contribution that offers some great tax advantages.
A donor-advised fund is like a charitable savings account: a donor contributes to the fund as frequently as they like and then recommends grants to their favorite charity when they are ready.
Donor advised funds are charitable accounts that allow you to make a contribution to the fund and recognize the full contribution for tax purposes in the year you make it but make distributions to charitable groups over time. You can fund a donor advised fund by writing a check or by transferring securities into the fund. The latter can offer some interesting tax advantages.
An example of a tax efficient strategy is the when someone holds a stock position with a low cost basis. Let’s say that you own a stock position that has a value of $100,000 with a cost basis of $10,000. If you were to sell the stock position to fund a charitable gift you would have a capital gains tax of $13,500. The charity would only receive $86,500 after you pay capital gain tax. If you contribute the stock into at donor advised fund you would see the full $100,000 available to use for charitable giving. Donor advised funds are also good if you are fond of certain stock and don’t want to part ways. The donor advised fund can continue to own the stock until the time is right to sell.
Donor advised funds are easy to set up. You can work with your investment advisor or reach out to a community foundation to get started. Donor advised funds can be started with a relatively small amount of money. Unlike private foundations, you can start with between $5,000 and $10,000.
Donor advised funds can be a tax advantaged way to pursue your philanthropic goals.
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.