Ann Woodyard, MBA, PhD, CFP®
Americans love to give money. Most of us make charitable donations of some kind at least annually. Schools, churches, health organizations, arts coalitions all benefit from our generosity. Giving to multiple organizations can be gratifying, but it also can be quite complicated from a record-keeping perspective. Also, before the TCJA of 2017, taxpayers who itemized deductions also realized tax benefits from their donations. While this benefit has become somewhat illusive, it is still available.
What would you think of a giving vehicle that gave you accessibility to all your favorite organizations, simplified the tracking of your donations and, with a little planning, restored at least some of the tax benefits you realized before? Meet the donor-advised fund!
Donor-advised funds, or DAFs, have been around for nearly 100 years and have facilitated the giving of billions of dollars each year1. Does your hometown have a community foundation with a name like the Greater Kansas City Community Foundation as we have where I live? You have access to a DAF. Similar foundations may be sponsored by a financial institution like a mutual fund or brokerage company.
Here is how it works: You open a DAF account at your sponsoring organization. You are effectively opening your very own charitable foundation at this point, and you can name it whatever you want within the sponsoring organization guidelines. Now that you have your own foundation, you donate to your foundation. Then, you tell the sponsoring organization how you want your money to be given away. You don’t even have to give it all away immediately.
What if the sponsoring organization doesn’t have a connection to the organization where you want to donate? They will contact that organization, and after a bit of due diligence to make sure everything is copacetic with the IRS, they will make your donation.
What about the tax benefits? What if you don’t give enough to surpass the new standard deduction? The solution here isn’t perfect, but it might help. If you make a donation large enough for two or three years of your usual charitable donations, you can count it all this year because the donation is made when you put the funds into your foundation, not when they get to the end-user organization. So, if you are accustomed to donating $10,000 a year, you can give $30,000 this year and beat the standard deduction for married filing jointly status and still be able to deduct $6,000 of charitable deductions.
What if you are used to giving appreciated property such as stocks for your donations? Even better with a DAF. Sponsoring organizations usually have a more streamlined process than individual charitable organizations so this win-win donation strategy works even better than before!
The use of a donor-advised fund facilitates charitable giving, simplifies record-keeping, provides a layer of protection from bad actors, and may rescue a tax benefit. Check it out with your favorite Creative Planning Advisor.
This commentary is provided for general information purposes only and should not be construed as investment, tax or legal advice. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.