Use Donor Advised Funds (DAF)

A Donor Advised Fund (DAF) is a philanthropic vehicle that enables you to make a charitable contribution, receive an immediate tax deduction, and recommend grants to your chosen charities over time. When you contribute to a DAF, you can deposit cash, securities, or other assets. These assets can be invested and grow tax-free, as you do not realize capital gains, yet you still receive a deduction for the appreciated value of the asset. The initial tax deduction can be substantial, depending on the type and amount of the asset contributed. DAFs offer a strategic way to manage your charitable giving, facilitating planned donations rather than impromptu contributions. The Vanguard Charitable, Schwab Charitable Fund, [Fidelity Charitable], et cetera permit donating securities and cash now, obtaining a charitable deduction now, and directing donations to charities later. Some find it easier to donate securities this way. E.g., smaller charities may have difficulty accepting securities. It also permits deduction timing (no restrictions on timing if you’re enrolled in employee trading plan(ETP) or SEC 10b5-1 plan). However, if the time between donating securities to the fund and directing to charities is large, one may lose out on deducting the growth in the securities.

1.

Create Donor-Advised Charitable Fund at Fidelity, Schwab, or Vanguard.

2.

Donate appreciated long-term stock to the fund. Receive immediate tax-deduction.

3.

Choose from a small set of investments.

4.

Designate donations to charities as desired (Donor-Advised).

5.

Fund will give the money to the charity (with credit to you, or anonymous, as you wish).

6.

If you have employer’s match, it applies at step 5.

Donate to Donor-Advised fund in high-tax-bracket year (designate to charities in subsequent years).

Deductions for cash donations to donor-advised funds are generally limited to 60% of your adjusted gross income (AGI), and donations of appreciated securities to 30% of AGI.

Many DAF administrators charge fees for assets under management. These fees can be both administrative and investment-related. Typically, the fee rate decreases as the amount of assets increases. The minimum amount required to open a DAF varies between $50 and $100 for most administrators.