Based on a recent study produced by Wells Fargo, “a shift in the values and priorities that drive charitable giving is also driving a shift in the way that many affluent and high-net-worth individuals choose to give.” In this month’s Waccamaw Wisdom, Karen Minogue walks us through the intergenerational wealth transfer and the tax advantages, flexibility and other benefits of starting a donor advised fund. Suggestions for future topics are always welcome at firstname.lastname@example.org.
According to a recent article published by Wells Fargo, a donor advised fund (DAF) offers flexibility and benefits that private foundations cannot offer. The company reports that according to the National Philanthropic Trust, a 2017 study found the percentage of individual giving flowing through DAFs grew from 4.4 percent in 2010 to 8.3 percent in 2016. Today, some families are moving assets out of private foundations to multiple DAFs to give younger generations more flexibility; and some private foundations are shutting down completely and converting their assets into DAFs for this and other reasons we will go into below.
Younger generations don’t necessarily want the administrative burden that goes along with a private foundation. Some prefer to engage in the “fun” part of grantmaking (i.e. selecting the charitable causes and nonprofit organizations to grant funds to) without worrying about the administrative burden and compliance issues.
That’s where your community foundation comes in. For donors with DAFs, said funds are much “easier” to manage than private foundations. Creating a DAF requires no board meetings, and no additional administrative or investment oversight. This option is much simpler to manage than a private foundation.
There are several other benefits of donor advised funds which account for their gaining popularity. Per the study referenced above, these include:
Anonymity. Unlike grants to a charity through a private foundation which become public record, individuals contributing to a DAF are not required by law to be recognized when grants are awarded from a donor advised fund. Donors can make their grants anonymously. A DAF may also have several different advisors recommending grants from a fund – these advisors may span multiple family generations and/or can include several different employees, etc.
Tax advantages. Donations of highly-appreciated assets to DAFs also have potential tax advantages. People who give to DAFs receive an immediate tax deduction relative to their overall income tax liability. In addition to having the immediate tax deduction – by donating highly-appreciated assets to DAFs, the invested assets have the potential to grow tax-free.
Flexibility. With a DAF, a donor gifts assets (often cash, securities or real estate) to the fund while alive or upon death. These assets have the potential to grow while donors determine which charities to support and when to recommend grants to charities they wish to support. Donors may also designate heirs to oversee their donor advised fund. While individuals of high net-wealth may choose to create a private foundation, DAFs are also an economical alternative for those without tremendous wealth to pass on their legacy.
Tax benefits. DAFs provide tax benefits that private foundations cannot. Real estate donated to a private foundation is valued at its cost basis (the original value of the asset); whereas real estate gifts to donor advised funds are valued at their current value, which can be higher, potentially providing a bigger tax break.
Easier noncash gifting. Donor advised funds can make noncash gifts easier to handle. Donating appreciated stock, real estate, or collectibles directly to a charity can be complicated. Nonprofits don’t necessarily have the capacity to accept and/or manage gifts of all asset types. A DAF managed by a community foundation can help sell assets and distribute the proceeds – often to multiple charities.
We’re here to help
Community foundations have one thing in common – uniting people from all walks of life who have the desire to make a difference in their community.
Whether your income is fixed, average or above the norm, you can give back to your community with the help of Waccamaw Community Foundation.
To Learn More
Give Karen Minogue a call at 843-357-4483 or email her at email@example.com.
This blog does not provide legal or tax advice. Consult your independent attorney, accountant and tax advisor before implementing any financial, tax, or estate planning strategy.