Simplify Your Charitable Giving with a Donor-Advised Fund
John and Mary enjoy supporting several charities throughout the year. They give to their church, contribute to organizations serving their community, and support causes that matter to their family. But between keeping track of donations, gathering tax receipts, and deciding how much to give at year-end, their generosity has become a little more complicated to manage.
A donor-advised fund (DAF) could offer a simpler, more organized approach to their charitable giving. Rather than making each gift separately, John and Mary can contribute to a DAF and recommend grants to their favorite qualified charities throughout the year. This allows them to:
- Simplify the recordkeeping. They receive one charitable contribution acknowledgment for their contribution to the DAF, rather than having to track individual contribution receipts for each subsequent grant.
- Organize giving and tracking in one place. They can manage their charitable contributions through a single account while continuing to support the organizations that are important to them.
- Plan ahead. They can make a larger contribution to the fund when it makes sense financially and recommend grants to charities over time.
- Involve family members. They can invite their children to participate in conversations about charitable giving and the causes they want to support.
Make Your Investments Part of Your Giving Strategy
A DAF can also provide an opportunity to coordinate charitable giving with investment and tax planning, particularly when you own investments that have appreciated significantly.
For example, suppose John and Mary own stock worth $50,000 today, that they purchased years ago for $15,000. Rather than selling the stock, potentially paying capital gains tax, and donating the remaining cash, they may be able to contribute the appreciated shares directly to their DAF. This approach may offer several benefits:
- Potentially avoid capital gains tax. If the shares qualify, contributing them directly to the DAF may allow John and Mary to avoid capital gains tax on the $35,000 appreciation.
- Potentially receive a charitable deduction on their tax return. They may qualify for a deduction based on the fair market value of the donated shares, subject to applicable rules and limitations.
- Give more efficiently. The DAF can sell the donated shares and use the proceeds to fund grants to the qualified charities they recommend, potentially allowing more of their investment value to support charitable causes.
The actual tax benefit depends on their circumstances, including whether they itemize deductions, how long they have held the investments, and applicable contribution limits.
A donor-advised fund can help bring organization to your generosity, coordinate giving with your broader financial plan, and make it easier to support the causes that matter most to you and your family.
This content is provided for educational and informational purposes only. The individuals and circumstances described are hypothetical or have been modified for educational purposes and do not represent the experience of any specific client. This content should not be construed as legal, tax, investment, or financial planning advice. Tax treatment, including the availability and amount of any charitable deduction, depends on individual circumstances and applicable tax laws and limitations. Individuals should consult their own professional advisors regarding their specific circumstances.
Heather Gardner, CFP®, CeFT®
Wealth Advisor and Certified Financial Transitionist
