Donor-ad­vised Funds: The Fastest-grow­ing Ve­hi­cle For Char­i­ta­ble Giv­ing

Thanks to the gen­eros­ity of Dan and Jill Fran­cis, hun­dreds of chil­dren in ohio have been given a crit­i­cal head start in life.

Forbes - - PROMOTION - By JOE Mul­lich

DAFS are be­com­ing pop­u­lar be­cause of the flex­i­bil­ity they of­fer donors to fund and ad­min­is­ter their phi­lan­thropy.

Af­ter sell­ing their in­ter­est in a fam­ily busi­ness, the re­tired cou­ple from Sid­ney, Ohio, used some of the pro­ceeds to help put more than 700 low-in­come chil­dren through preschool. The Fran­cises were in­spired to give back af­ter Dan’s sis­ter, a kinder­garten teacher, told him about the num­ber of chil­dren in her class who were al­ready fall­ing be­hind.

“Pro­vid­ing early ed­u­ca­tion for kids is one of our coun­try’s ma­jor so­cial chal­lenges,” said Dan, cit­ing re­search show­ing that a preschool ed­u­ca­tion raises long-term aca­demic per­for­mance and earn­ing power, es­pe­cially for kids from dis­ad­van­taged back­grounds.

The cou­ple of­fered their sup­port through a donor-ad­vised fund (DAF), one of the fastest-grow­ing char­i­ta­ble-giv­ing ve­hi­cles in the U.S. to­day that’s also sim­ple, flex­i­ble and tax ef­fi­cient.

Donors make an ir­rev­o­ca­ble do­na­tion of cash, se­cu­ri­ties or other as­sets to a pub­lic char­ity that spon­sors a DAF pro­gram. The donor is el­i­gi­ble for an im­me­di­ate tax de­duc­tion, and the do­na­tion can then be invested and grow tax-free. At any point, the donors can rec­om­mend which Irs-qual­i­fied char­i­ties will re­ceive the funds.

Us­ing the funds from their DAF, the Fran­cises worked with the school dis­trict in Ohio to start a pub­lic preschool, and then with the Child Care Net­work (CCN), a non­profit that pro­vides preschool schol­ar­ships for lower-in­come fam­i­lies suf­fer­ing from home­less­ness or crises.

Tax Ad­van­tages Of Not Us­ing Cash

In ad­di­tion to cash, a DAF can be funded with many dif­fer­ent as­sets such as stocks, mu­tual fund shares, Bit­coin, pri­vate eq­uity and hedge fund in­ter­ests, real es­tate and even more com­plex as­sets, such as pri­vately held C-corp and S-corp shares.

Con­tribut­ing long-term ap­pre­ci­ated as­sets di­rectly to a DAF is a tax-smart ap­proach that ben­e­fits the donor in two sig­nif­i­cant ways: First, the donor may qual­ify for an in­come tax de­duc­tion for the fair-mar­ket value of the as­set. Sec­ond, the donor may be able to min­i­mize cap­i­tal gains taxes, up to 23.8 per­cent, fig­ur­ing 20 per­cent for fed­eral long-term cap­i­tal gains taxes, plus a 3.8 per­cent Medi­care sur­tax. This can pro­vide a sig­nif­i­cant ad­van­tage over sell­ing the as­sets and then do­nat­ing the af­ter-tax pro­ceeds to a char­ity.

Do­nat­ing long-term ap­pre­ci­ated se­cu­ri­ties and let­ting the in­vest­ments grow for 10 years en­abled the Fran­cises to pro­vide an ad­di­tional $170,000 to CCN. That meant they could help 79 more chil­dren.

“We didn’t want to do one big gift and walk away,” Dan said. “We wanted to find the area where our money could have the great­est im­pact over time. There’s just no ques­tion that our [DAF] has al­lowed us to do more good than we could have with­out it.”

Boost­ing Your Giv­ing Im­pact

DAFS are be­com­ing pop­u­lar be­cause of the flex­i­bil­ity they of­fer donors to fund and ad­min­is­ter their phi­lan­thropy, and peo­ple are find­ing a va­ri­ety of ways to use DAFS to in­crease the im­pact of their char­i­ta­ble giv­ing. Here are some op­tions:

• Es­tab­lish a DAF be­fore you re­tire. If you want to focus on phi­lan­thropy in re­tire­ment, cre­at­ing a DAF well be­fore can have a num­ber of ben­e­fits. For ex­am­ple, mak­ing a large do­na­tion to a DAF to­day can re­duce your cur­rent taxes more than if you make

a se­ries of smaller gifts in re­tire­ment when you’re in a lower tax bracket. The char­i­ta­ble con­tri­bu­tions to your DAF can be invested for tax-free growth un­til you’re ready to focus on phi­lan­thropy. Ac­cord­ing to Fidelity Char­i­ta­ble®1, 62 per­cent of DAF donors start a donor-ad­vised fund to sus­tain their giv­ing in re­tire­ment.

• com­bine a DAF with your other giv­ing. There are ad­van­tages to com­ple­ment­ing a DAF with other char­i­ta­ble-giv­ing ve­hi­cles you’ve al­ready es­tab­lished, such as a pri­vate foun­da­tion, char­i­ta­ble re­main­der trust or char­i­ta­ble lead trust. For starters, char­i­ta­ble de­duc­tion lim­its when con­tribut­ing long-term ap­pre­ci­ated as­sets to a pri­vate foun­da­tion are gen­er­ally lower than those for a DAF. With a DAF, you may be el­i­gi­ble for a tax de­duc­tion for the fair mar­ket value of the as­set, sub­ject to a lim­i­ta­tion of 30 per­cent of your ad­justed gross in­come, ver­sus 20 per­cent if that same gift is do­nated to a pri­vate foun­da­tion.

• cre­ate a ben­e­fi­ciary of a trust. Some peo­ple main­tain a char­i­ta­ble re­main­der trust or a char­i­ta­ble lead trust at the same time as a DAF. If you cou­ple the trust with a DAF, like the Giv­ing Ac­count® from Fidelity Char­i­ta­ble®, you can make Fidelity Char­i­ta­ble® a ben­e­fi­ciary of the trust. In that way, you won’t have to pay an at­tor­ney to up­date the ben­e­fi­cia­ries of the trust over time as you de­cide which char­i­ties to sup­port, sig­nif­i­cantly re­duc­ing your pa­per­work and ad­min­is­tra­tive chores. With all these ad­van­tages, and the abil­ity to es­tab­lish an ac­count with as lit­tle as $5,000, it’s no won­der DAF con­tri­bu­tions have reached an all-time high; ac­cord­ing to the Na­tional Phil­an­thropic Trust 2016 DAF Re­port2, grant-mak­ing from DAFS to qual­i­fied char­i­ties jumped nearly 17 per­cent be­tween 2014 and 2015.

DAFS are a great way to en­joy a sig­nif­i­cant tax ben­e­fit to­day, while mak­ing a huge im­pact on the world now and well into the fu­ture.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.