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Are Donor-Advised Funds The Way to Go?

Charitable planningWhat's the best way to make tax-deductible charitable contributions?

As with anything worth doing, the answer about the best approach to charitable planning never lends itself to one-size-fits planning.  Suitability depends on several factors, such as the recipients of your gift, the kinds of assets you'd like to donate, the size of your gift and your timing.

Many folks take advantage of donor-advised funds (DAFs) to simplify their giving and take an immediate tax deduction. DAFs let the donors set the pace in determining recipients and distributing funds. There are no IRS requirements for minimum annual distributions. These and other features have made DAFs the fastest-growing giving vehicles in the U.S.

DAFs are maintained by major financial institutions like Fidelity and Vanguard. They manage the recordkeeping and tax reporting for a fee. Contributions within these accounts can be invested to the donor’s specifications and grow tax-free.

As far as IRS value calculations, directly donating securities is like donating cash. The charity has to be set up to accept publicly traded or private securities. The donations of securities and other appreciated assets are limited to 30% of adjusted gross income (AGI) and cash donations are limited to 50% of AGI. The same limits apply to DAFs. Moving appreciated stock into a DAF results in the donor taking an immediate tax deduction for its full market value and protection against the tax-dollar hit. DAFs have no payout requirements in terms of timing or funding, so the donor can take time to plan the charitable distributions.

The benefits of direct giving include writing a check, making a contribution with a credit card or donating a used vehicle, which you can do on the last day of the year for tax purposes. Writing a check is still the simplest option for many, but the catch there, is that you have to do the recordkeeping.

If you want to keep your giving as non-public as possible, DAFs are a wise option because the donations are made through the financial entity that holds the DAF. You get to decide whether or not the gift will be acknowledged or if you prefer, you can keep your giving private.

Reference: Kiplinger (November 2016) “Are Donor-Advised Funds the Best Charitable Giving Vehicle for You?”

 

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