A Brief Look at Donor-Advised Funds
A donor-advised fund is a charitable account for the sole purpose of supporting charitable organizations you care about. In this case, Final Frontiers Foundation.
Contributing cash, securities, or other assets to a donor-advised fund at a public charity allows you to take an immediate tax deduction when eligible. Then those funds can be invested for tax-free growth, and you can recommend (advise-this is the donor-advised part) grants to any IRS-qualified public charity.
You want your charitable donations to be as powerful as possible when you give. Donor-advised funds are the fastest-growing charitable giving vehicle in the United States because they are one of the easiest and most tax-advantageous ways to give to charity. So how do they work?
Establish a tax-deductible donation
Start a Giving Account and then donate cash, stocks, or non-publicly traded assets such as private business interests, cryptocurrency, and private company stock to be eligible for an immediate tax deduction. A gift to a donor-advised fund is an irreversible commitment to charity; the funds cannot be returned to the donor or any other individual or used for any purpose other than grant-making to charities.
Allow your donation to earn more, tax-free
You’ve set up the account, and now it’s time to decide where to direct your gift. But in the meantime, your donation can potentially grow tax-free, making available even more money for charities. Most sponsoring charities have multiple investment options from which you can choose a plan for your donation.
Give to the charities important to you today and in the future
You can give to any IRS-qualified public charity with grant recommendations from the donor-advised fund—from your local foundation to your church or missions foundation. The public charity sponsoring your account will ensure that the funds granted go to an IRS-qualified public charity and are used for charitable purposes.
You can contribute a wide range of assets
Donating non-cash assets can be more tax-advantageous than giving using cash or credit cards, but it can be a challenge for many organizations to accept these types of gifts. Giving assets other than cash can be easier with a giving account. In some situations, you may be able to transfer stock directly from your online brokerage account with one click.
Assets generally accepted include:
- Restricted Stock
- Publicly traded securities, ETFs, or mutual funds
- Private equity and interests in hedge funds
- Other more complicated assets such as C Corp and S Corp privately held shares
- Wire transfers, cash position from a brokerage account, checks, or a cash equivalent
- Ethereum, Bitcoin, and other cryptocurrencies
Boost possible tax benefits
Upon making a charitable donation, you can qualify for an immediate tax deduction, just as you would by donating to another public charity, like your school or church. But some gifts can make you eligible for additional benefits, such as cash.
If you donate cash via check or wire transfer, you’re generally eligible for an income tax deduction of up to 60 percent of your adjusted gross income.
Contributions of long-term appreciated assets
Giving long-term appreciated securities directly to charity—instead of cashing out the asset and donating the proceeds—can help maximize both your tax benefit and the overall amount you have to grant to charity. These donations provide two tax benefits:
- You may become eligible for an income tax deduction of the full fair-market value of the asset, up to 30 percent of your adjusted gross income.
- You could also mitigate or possibly eliminate capital gains tax on long-term appreciated assets as long as they’ve been held for more than a year.
Invest your gift for tax-free growth
When you have established your donor-advised fund, you may recommend an investment strategy for your account—potentially growing your account and providing you with more dollars to grant to charity. Many sponsoring organizations also have programs allowing you to nominate your financial advisor to manage the investment of your charitable funds.
Streamline documentation and management
When utilizing a donor-advised fund, you don’t have to keep track of every gift receipt from every charity you support—just the receipts from your donor-advised fund contributions. Then, when ready to support your charity of choice, you simply log in to your account and recommend a grant to any IRS-qualified public charity.
Bolster your future planning
You can incorporate your donor-advised fund into your estate planning by making a provision in your will or trust to the sponsor or by making the sponsor a beneficiary of a retirement plan, life insurance policy or charitable trust. By leaving direction with the sponsor, you can support multiple charities with one bequest. These gifts can also help reduce or eliminate the estate tax burden for your heirs.
Many sponsoring organizations also enable you to create a succession plan for your donor-advised fund—allowing you to pass the remaining funds in your account on to your heirs or your designated charities. Some programs allow you to break the fund up into multiple smaller funds to pass down to different successors. While sponsoring organizations handle succession differently, donor-advised funds can be a valuable tool for estate planning.
Want to Learn More?
Re-watch our May 23, 2023 webinar below where we go into more detail on donor-advised funds.
Please note: We are not attorneys or tax advisors. This information is educational only. Not to be considered as advice or recommendations. It is imperative that you consult with a tax advisor and/or attorney when considering any of these concepts. In addition, it is critical that the attorney, tax advisor, and financial advisor are knowledgeable and practiced in these areas.
If you would like help finding such an advisor, we will be glad to introduce you to an experienced planner with your best interest in mind. Please give us a call at 1-800-522-4324.