Are you a charitable person? Would you like your charitable giving to be easy, flexible, and tax-efficient? Maybe you should consider a Donor-Advised Fund (DAF).
What is a donor-advised fund (DAF)? Generally, a DAF is an account that is maintained and operated by a section 501(c)(3) organization, which is called a sponsoring organization (typically a financial institution). Each account is composed of contributions made by individual donors. Once a donation is made, the donor surrenders ownership of the funds, but the donor maintains control over how the contributions are invested, and how and when it distributes funds to the qualified charities of the donor's choice. A DAF account basically serves as a holding account until you decide what qualified charity you want to give to.
What is the best way to contribute to your DAF? You can certainly contribute cash to your DAF account. But to get the maximum tax benefit, consider donating an appreciated asset (one with a large unrealized gain) that you have held for over a year. This could be a stock you've owned for several years, privately held shares, or real estate. This way, not only do you receive the deduction for the value of the asset you donated, but you also may avoid capital gains taxes on the appreciated asset. (Note: With illiquid assets, some restrictions may apply.)
When do you get the tax deduction? You get the tax deduction in the year you make the contribution to your DAF account, even if you haven't made the final determination on which charity will receive the distribution from your DAF account. But FYI, don't wait until December 31st. Unless you're sending in a check to fund your DAF account, there are deadlines with other types of assets/securities.
When does the money go to your charity of choice? It's up to you. You choose when your money gets distributed from your DAF account to the qualified charity of your choice. There are no rules or regulations about when money must be distributed...it's up to you. The money gets distributed to the charity of your choice in the form of a grant check, along with a letter. The letter acknowledges you, and it can be personalized. Here's a sample: Schwab Charitable Sample Check (Click here)
When is a great time for you to use a donor-advised fund? A DAF account can be great anytime. But it's really great for year-end planning, when you want to take a charitable deduction on your taxes, but you aren't quite sure which charity you want to give to. With a DAF account, you can take the deduction now and decide on the charity later. But remember, don't wait until December 31st. Unless you're sending in a check to fund your DAF account, there are deadlines with other types of assets/securities.
Why use a DAF account versus other forms of charitable giving? Some people use a charitable remainder trust (CRT) for their charitable giving. A CRT is great if you want to receive income from your gifted assets for a period of years or for your life, with the named beneficiary (charity) receiving the CRT assets at the end of the term. But setting up and maintaining a CRT takes some work, and you will need an attorney to draft the trust document. If you don't need income from your gifted assets, then you probably don't need a CRT. Some people might set up a private foundation, but this can be very expensive and involves ongoing compliance and many rules. Many people just donate directly to a charity. This works great with cash donations, but typically not so well with appreciated assets. Your local homeless shelter probably has no idea how to convert an illiquid asset (real estate, etc) to cash, but the sponsoring organization for your DAF account could do this for you. Before you make a decision on what form of charitable giving is right for you, make sure you consult a qualified attorney.
What are the costs associated with a DAF account? The costs vary depending on the sponsoring organization, possible mutual fund fees, and any advisory fees involved. Typically, you shouldn't have to pay much more (if any) for a DAF account than you would a regular investment account. And the total costs for a DAF account are typically lower than setting up and maintaining a charitable remainder trust (CRT), and usually much lower than setting up and maintaining a private foundation.
Want to learn more? Pretty much everything you need to know about DAF accounts can be found on the Schwab Charitable website. Here's the link: Schwab Charitable Website (Click here)
HyLine Bottom Line: A Donor-Advised Fund (DAF) account can make your charitable giving easy, flexible, and tax-efficient.
What can I do at HyLine Wealth to help you with your charitable giving? If a DAF account would help you with your charitable giving, I can help. I will help you establish and contribute to your DAF account using the Schwab Charitable Fund (sponsoring organization). And I can assist you with any distributions from your DAF account to the qualified charities of your choice. I will focus on keeping your costs low, and my advisory fee will be no more than 0.50% per year on your DAF account. I'm very confident that your total costs with me, using the Schwab Charitable Fund, would be lower than what it would cost you with most other full service advisors. In fact, if you have other assets with me totaling $1mil or more, I will waive my advisory fee on your DAF account(s)...because I love seeing people give back. I will also consult with your tax advisor and/or estate planning attorney when necessary to make sure we are all on the same page. Bottom line, I will make this very easy for you.
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Questions? Don’t hesitate to reach out. If you have questions on anything, feel free to email me at firstname.lastname@example.org or call me at (605) 275-2343.
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Consult your financial advisor, tax advisor and/or estate planning attorney before using a donor-advised fund (DAF) account, charitable remainder trust (CRT), or private foundation to make sure it's right for you and your unique situation.
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HyLine Wealth is an investment adviser registered in the State of South Dakota. We do not provide tax or legal advice. Past performance is no guarantee of future results. Always consult your financial advisor, tax advisor, attorney, and/or insurance agent before implementing any specific strategy to make sure it is right for you and your unique situation. We are not responsible for the accuracy or upkeep of information on the links we provide to outside websites. If/when we provide a link to an outside website, be sure to independently confirm the accuracy of any information.