Per capita, Americans give more in this single month than most nations give all year long. In light of the recent economic downturn and governmental cuts to social service programs, the need for the services from charitable organization has never been greater. These vital non-profit organizations provide goods and services to those in need throughout the world, often more cost efficiently than federal and state governments.
Ironically most donors who give to charity, do it in a non-cost efficient way.
Most donors who own highly appreciated securities often give after tax cash to charity vs in kind gifts of low basis property. It is always better to give a highly appreciated asset to charity versus cash. When one donates a low basis stock or mutual fund to charity, they receive a charitable income tax deduction equal to the current value of the stock at the date of donation. And, the charity can sell the stock without realizing capital gains tax! The reason why donors give cash vs their low basis securities is giving low basis assets to charity can be tedious due to fractionalizing shares of stock or mutual funds. The solution – A Donor Advised Fund.
Donor Advised Fund
A Donor Advised Fund (DAF) is a subaccount of a community foundation, which is a public charitable organization. A donor can set up their own account within the community foundation often at no cost. The donor can donate low basis assets to their account at the DAF, receive a charitable deduction, avoid capital gains taxes and advise the DAF regarding which charitable organizations should receive their grants.
A word of caution, not all DAFs are created equal! There are primarily four types of DAF sponsors:
- Local community foundation
- Large national charitable organization
- Investment company
- Independent national community foundation
Contact us if you would like to talk about charitable giving in general or a Donor Advised Fund in particular.
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See Part 2 where we will discuss more best practices for Donor Advised Funds.
Posted on Thu, September 1, 2011