Donor-Advised Funds Maximize Tax-Smart Charitable Giving and Impact

Key Quotes

"A donor advised fund is, I believe, a really simple, tax-smart way to give to charity. How they work is that you make a contribution of either cash or appreciated assets. We take many forms of appreciated assets, everything ranging from real estate to interests in private companies to even cryptocurrency. And essentially help people liquidate those assets. People receive a tax deduction for the value of those assets at the time of contribution. They can then either grant that money out right to charity immediately, or they can invest it in a number of vehicles, either by themselves or have it managed by a registered investment advisor, let that grow over time until they're ready to donate to the charity of their choice."

Julie Sunwoo explains that a donor advised fund (DAF) offers a straightforward and tax-efficient method for charitable giving. Sunwoo highlights that DAFs can accept various assets, including cash and appreciated assets like real estate or cryptocurrency, and that contributions are tax-deductible at the time of donation. She also notes that funds can be invested to grow before distribution to a chosen charity.

"I think one of the misconceptions is that it's a vehicle purely for really wealthy people. So, and philanthropic giving in general, sometimes people believe that that's for people with more means. I think one of the things that DAFs brings is low minimums or no minimums in the case of DAF Giving 360. We have no account minimums, so you could presumably start an account for yourself or for your children with as little as $100, very low amounts, and we do see that activity."

Julie Sunwoo addresses a common misconception about donor advised funds (DAFs), stating they are not exclusively for the wealthy. Sunwoo emphasizes that DAFs can be accessible with low or even no minimum contribution requirements, making them available to a broader range of individuals, including those starting their philanthropic journey or wanting to involve younger family members. This accessibility aims to increase overall charitable giving.

"If you are thinking longer term and have, like I said, non-cash assets, so all of those types of appreciated securities especially that you're looking for a place to give and to leverage, you can make use of a vehicle like donor advised funds to do that. In fact, over 60% of the contributions that we typically receive in a given year are appreciated assets. And so if appreciated assets are something that you want to take advantage of, you can give them to contribute them to a donor advised fund, receive that immediate tax deduction for the full value without getting a tax hit for that contribution because you're giving to a 501(c)(3) and nonprofit, which is what donor advised funds are."

Julie Sunwoo explains the advantage of using donor advised funds (DAFs) for donating appreciated assets, such as stocks. Sunwoo points out that over 60% of contributions to DAFs are in the form of these assets, allowing donors to receive an immediate tax deduction for the full value without incurring capital gains tax. This strategy maximizes charitable contributions by leveraging the growth of these assets.

"Researching charities can be quite overwhelming because right now there are over one and a half million charities in the U.S. deemed eligible by the IRS. So that is a daunting number. So I can understand people's challenges when they think about where do I go? I think the first thing to think about is to go back to your personal values and not only your own, but if you're thinking about establishing a legacy that lives on beyond you, it's a great conversation starter this values discussion to have with kids, grandkids, other members of the family to bring everyone into the conversation."

Julie Sunwoo acknowledges the difficulty of selecting charities from a vast pool of over 1.5 million eligible organizations. Sunwoo suggests that individuals begin by reflecting on their personal values and, if establishing a legacy, engaging family members in a discussion about shared values. This approach helps to narrow down the focus to specific sectors or causes for charitable impact.

"The IRS charitable contribution deadline is December 31st for this year, and that is the deadline if you want to receive a tax deduction for the contributions that you make to nonprofits. So for donors specifically, what that means in the case of donor advised funds is that all contributions are required to be submitted and processed by December 31st in order to get that tax deduction."

Julie Sunwoo clarifies the critical deadline for charitable contributions to receive a tax deduction. Sunwoo states that for the current year, December 31st is the final date for submitting and processing contributions to nonprofits, including those made through donor advised funds. She advises donors to submit their contributions earlier than the deadline to ensure timely processing.

"The bottom line is this: I'm a bit skeptical whenever I hear the phrase that something is a win-win. It always seems a little too good to be true, but not this time. Giving to charity can have a number of positive benefits for both the giver and the receiver."

This quote, attributed to Mark Riepe, expresses a pragmatic view on the benefits of charitable giving. Riepe suggests that while the concept of a "win-win" can often be suspect, charitable giving genuinely offers advantages to both the donor and the recipient. This perspective frames charitable acts as mutually beneficial.