The Perfect Time for A Donor-Advised Fund
Scarcity and Insecurity: A Donor-Advised Fund Can Empower You to Give
Since the United States has been facing COVID-19, we’ve observed a common human behavior in a very odd way. Shortly after the news of quarantine in other countries was announced, people began panic-buying products, and especially notable has been the over-purchasing of toilet paper. As news traveled of toilet paper shortages in stores, more and more people bought up far more toilet paper than they needed out of fear of not having enough. Eventually, stores were forced to implement “One Per Customer” rules to prevent single customers from filling their carts and buying up all of their stock. In a somewhat strange form, we’ve seen that scarcity quickly leads to human insecurity.
With markets like this, are you finding yourself feeling the urge to “stockpile” your financial resources? Perhaps you’re still giving as generously as ever, yet finding it more difficult as the markets aren’t as “well-stocked” as they once were. This is where having and using a Donor-Advised Fund (DAF) can help. DAFs empower donors to continue giving in the good times and the bad. Here’s how.
Benefits of Donor-Advised Funds
We are big fans of Donor-Advised Funds as a tool for simplifying charitable giving and improving tax management. If you’re unfamiliar with donor-advised funds, these are 501(c)3 philanthropic vehicles designed to simplify charitable giving. Four unique features of a DAF (and there are others) are:
Flexibility. When funds are given to the DAF, they are legally owned by the DAF and not the donor. After initial transfer, you receive an immediate income tax deduction for all funds in the year you contribute and there is no requirement on when you choose to distribute those funds. This allows givers and the financial advisers to optimize tax deductions when they are needed, yet it gives the donor flexibility to give when they are ready.
Simplicity. You can make one large gift to the DAF (maybe a big bonus or proceeds from a large transaction), you get one initial write off and you have one valuable tax receipt. Then, you direct gifts to your various charities without having to chase down and retain tax receipts. And, you get to decide whether you want to remain anonymous or not.
Complex Gifts. DAFs can more easily accept non-cash assets than typical charities. Donors can donate more complex investments, including real estate property, mineral rights, closely held company stock, or other illiquid investments. Because you have the option of direct donation rather than liquidating the asset and donating the proceeds, you are again able to maximize the amount you give to the charity.
Tax-efficient growth. You can invest the funds in your DAF while waiting to grant them out, and you are not taxed on their growth because the assets are legally owned by the DAF. This allows potential maximization of the amount to give to your charity of choice. Furthermore, DAFs are not subject to estate tax and can allow families to create a long-lasting philanthropic legacy.
Is Now the Time for Sharing and Giving?
Money put into a DAF during good times is generally available during the hard times too. Right now, it is a hard time. Almost every day we are getting cancellation notices for another charitable gala or fundraising event. We see businesses hurting and your favorite charitable cause is probably hurting too. Now may be the time to access your “toilet paper reserve” and disburse generously and joyfully from your Donor-Advised Fund.
Don’t have a DAF? The CARES Act has made giving out of current assets and income even more attractive. For individual givers, you may be able to deduct up to 100% of AGI, and for corporations, the charitable deduction limit has been raised from 10% to 25%. These “special rates” are only available during 2020 so as you are quarantined and learning to live with less, perhaps this is the time to enjoy giving more.
While your CPA is probably the primary contact for how to implement giving through a Donor-Advised Fund as a tax reduction strategy, we would be delighted to discuss the value of and methods for increased giving, even in times like this. If you have any questions or need assistance, please contact us at 832-500-3101 or service@kingspath.com.
