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Posted: Dec 13, 2018 1:46 PM
Updated: Dec 13, 2018 2:02 PM

I've heard a lot about donor advised funds. Are they a good way to structure my charitable giving while getting tax benefits?

A donor advised fund is a relatively simple, flexible and tax-efficient way to grow your investments and give to charity.

Think of it as a dedicated account for your charitable giving. It allows you to contribute cash, securities or other assets to the fund and get an immediate tax deduction. You maintain control of your investments, which grow tax-free since they are charitable donations, and make grants to the IRS-qualified charity you choose.

You can open a fund with as little as $5,000. All the money you put in goes to charity (once it's in, you're not getting it back), but you get an immediate tax break. Deciding how the money gets distributed is up to you: dole out $2,000 every year to a bunch of different charities, for example, make a significant gift of a $1 million ten years from now, or create a fund as a legacy for your children to continue to distribute after your death.

"Donor advised funds are one of my go-to strategies for reducing taxes for people who are already charitable," says Patrick King, a certified financial planner with Transformative Financial.

Here's how to figure out if a donor advised fund is the best way to accomplish your giving goals.

The benefits

Opening a fund is relatively easy. You can do it through many public charities such as Fidelity Charitable, Schwab Charitable, the National Philanthrapic Trust or a community foundation. You just need a Social Security number and at least $5,000 to invest, though some charities may have higher minimums.

If you donate cash, you're eligible for a tax deduction of up to 60% of your adjusted gross income.

But the real appeal of donor advised funds for many investors is that they might accept a wide variety of donations — including publicly traded securities, restricted stock, mutual fund shares, cryptocurrencies, private equity and hedge fund interest, real estate or privately held C-corp or S-corp shares — that charities often cannot accept.

"Donor advised funds have gotten to a place where they can take more complex assets," says Tina Davis Milligan, managing director of family office services at BMO wealth management. "A lot of clients have large capital gains and they may give more than they planned because it becomes more meaningful."

This is where investors can find very favorable double tax benefits. If you give these appreciated assets directly to a donor advised fund, you can, first, avoid paying capital gains tax and, second, take an additional income tax deduction in the amount of the full fair market value of the asset, up to 30% of your adjusted gross income.

A donor advised fund could make a great deal of sense right before retirement, says Michael Troxell, an investment adviser and certified public accountant with Modern Financial Planning.

"While a near-retiree is still working and in a high tax bracket, they could contribute a large amount of charitable giving (say 10-20 years worth) to a DAF in order to maximize the tax benefit while being able to distribute the funds to charitable organizations over the course of their retirement," says Troxell.

A good time to establish or add money to your fund is after a significant swell in assets — maybe a retirement payout, an unusually high bonus or the sale of a company.

"When a client has a big year, a donor advised fund can 'front load' their charitable giving for future years while providing a large charitable deduction in the year they need it most," says King.

The pitfalls

Like any investment, the value of a donor advised fund fluctuates. Don't get in over your head with a fund that includes costly or risky investments, says Dan Stous, the director of financial planning at Flagstone Financial Management.

Another mistake is opening a DAF with a high-cost provider. "There may be some premium services offered by some providers to justify a fee, like acting as a consultant to connect the giver with charities in their community, or talking through complex gifting situations, but givers should know what they're paying, and know what they're getting for that fee."

But the biggest pitfall with a DAF is to simply view it as an investment or tax-reduction vehicle, says Stous.

"Ultimately, donor advised funds are a way to give to charity," he says. "If your primary reason for putting money in a fund is something other than a generous heart, you're setting yourself up for disappointment."

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 263023

Reported Deaths: 5752
CountyCasesDeaths
DeSoto17675191
Hinds16813331
Harrison14224204
Rankin11167219
Jackson10839190
Lee9050144
Madison8568168
Jones6668114
Forrest6177124
Lauderdale6097192
Lowndes5518120
Lafayette516298
Lamar503965
Washington4923125
Bolivar4104109
Oktibbeha405982
Panola384881
Pontotoc376258
Warren3674103
Monroe3671108
Union355663
Marshall355270
Neshoba3485154
Pearl River3468105
Leflore3111109
Lincoln305688
Hancock291862
Sunflower291475
Tate279662
Alcorn272354
Pike268981
Itawamba268063
Scott259648
Yazoo255256
Prentiss252553
Tippah249250
Copiah249049
Coahoma248054
Simpson242171
Leake237367
Grenada223272
Marion222073
Covington219973
Adams213671
Wayne212634
Winston207371
George204339
Newton199046
Attala196963
Tishomingo194161
Chickasaw189044
Jasper179538
Holmes171768
Clay165837
Tallahatchie156235
Stone151425
Clarke147262
Calhoun140822
Smith129226
Yalobusha122034
Walthall114337
Greene113529
Noxubee112926
Montgomery111636
Carroll106622
Lawrence106517
Perry104531
Amite101426
Webster96124
Tunica88821
Claiborne88325
Jefferson Davis88329
Benton85623
Humphreys84624
Kemper80520
Quitman7089
Franklin69917
Choctaw63213
Wilkinson59825
Jefferson56821
Sharkey45117
Issaquena1606
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Alabama Coronavirus Cases

Cases: 439442

Reported Deaths: 6657
CountyCasesDeaths
Jefferson644371007
Mobile31435569
Madison28158217
Tuscaloosa21492275
Montgomery19873332
Shelby19248132
Baldwin17128189
Lee13137107
Morgan12594142
Etowah12070181
Calhoun11496206
Marshall10420123
Houston8988164
Limestone832081
Cullman8257124
Elmore8183110
DeKalb7871107
Lauderdale7847107
St. Clair7808130
Talladega6445112
Walker6028183
Jackson599145
Colbert548694
Blount546286
Autauga535862
Coffee460764
Dale409685
Franklin374150
Russell354215
Chilton344373
Covington338580
Escambia334544
Tallapoosa3143109
Dallas312996
Chambers303470
Clarke298036
Pike262431
Lawrence253355
Marion253161
Winston233342
Bibb222348
Geneva210247
Marengo208231
Pickens199531
Hale184944
Barbour180538
Fayette177829
Butler173160
Cherokee165131
Henry159525
Monroe152021
Randolph145536
Washington141727
Clay129746
Crenshaw123745
Macon121937
Cleburne121525
Lamar119922
Lowndes114836
Wilcox107922
Bullock103328
Perry99918
Conecuh97822
Sumter90527
Greene77923
Coosa63418
Choctaw51924
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