A smarter path to charitable giving

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November 27, 2017

The end of the year is everyone’s favorite time to make charitable donations. It gives donors one last chance to secure additional tax benefits to offset gains in their portfolio while supporting philanthropic goals in the season of giving. However, the need to mitigate taxes doesn’t always align with when and where you want to donate your assets. 


Fortunately, there is a simple philanthropic tool called a Donor Advised Fund (DAF) that can take the pressure off of balancing these financial and philanthropic goals. A DAF is a charitable giving instrument supported by a public charity that makes it possible for donors to make a contribution that qualifies for an immediate tax deduction, and the asset is then reinvested, allowing the donor to make grants over time to any IRS-qualified public charities. 


“A DAF is a wonderful tool for giving,” says Mike Penfield, National Director of Charitable Services for U.S. Bank Wealth Management. “It allows donors to secure the tax benefits today while they plan their giving over time.”



It also allows the donor to achieve dual tax benefits: rather than selling a stock that results in a taxable event and then donating the proceeds to one or more charities, donors can donate the asset directly to the DAF, where it continues to appreciate tax-free. This way, they avoid taxes on the sale of the asset while achieving tax benefits from the donation.


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November 27, 2017

“The donor can invest the assets within the DAF and also direct when and to whom the final distributions are made to,” says Scott White, Trust & Investment Product Owner for U.S. Bank Wealth Management. Once funds are in the DAF, donors simply make donation requests and the funds are transferred to the charity. They can even set donations to be made automatically on a set timeline. “It’s an extremely simple way to manage charitable giving,” he adds.


Big tax break, bigger impact


This can be especially beneficial for donors who need to mitigate a high tax-burden year but want to parcel out their donations over time. For example, one U.S. Bank client and her spouse were nearing retirement with a large concentration of one stock. They wanted to diversify their holdings but faced significant tax consequences. To mitigate that tax burden, they donated some of the highly appreciated stock to a DAF because they were intentional about their philanthropy.  This gave them a triple tax advantage:


  • They received an immediate tax deduction.
  • They avoided paying capital gains.
  • The funds will grow tax-free in a diversified portfolio, and they can give funds to charity at any time in the future.  


This was an ideal solution for this client, though Penfield notes that donors don’t need to have a huge asset to set up a DAF. “It is just as useful for donating $5,000 as it is for a million,” he says.


Donors also can set their own timelines for giving. While some families use DAFs as a short-term tool to hold a donation until a specific fundraising campaign kicks off, others use it for lifetime giving, making donations to multiple charities over time.


“It can be a great teaching tool also,” White adds. He has one client who invites his grandkids to make donations each year using the funds in his DAF. “It opens the conversation about philanthropy and lets them get involved in giving.”


Donors interested in starting their own DAFs can work with their private wealth advisor to set it up, White says. “If you want to simplify your charitable giving and be able to make a bigger charitable impact, a DAF is one of the easiest ways to make that happen.”