Charitable Giving from Unexpected Sources
We’ve written before about the power of funding your charitable giving with appreciated securities through a Donor Advised Fund (DAF). As we approach year-end, we think it’s worth revisiting.
Appreciated publicly traded securities can certainly be a great asset to donate to a DAF, but some people also have non-cash assets as part of their balance sheet with even greater unrecognized appreciation that could be used. Examples include ownership shares in their company, real estate, or other capital gain investments.
Let’s quickly remind you of the benefits of a DAF:
- You avoid paying capital gains taxes on the investments donated.
- You receive a current year income tax deduction for the fair market value of the investment.
- Once in the DAF, proceeds can be reinvested in a diversified portfolio and grow tax free.
- Ultimately, a DAF allows you to stretch your charitable dollars farther than giving with cash.
Things to consider:
- Once monies go into a DAF, the only way they can come out is to be gifted to a 501(c)3 charitable organization.
- Making a gift is as simple as contacting P&A and letting us know the amount and the charitable organization, and we will take care of the rest.
- Fidelity Charitable is our DAF of choice. They charge 0.60% per year on the assets in your account, up to $500,000, then their fee drops to 0.30% (still a modest fee in our estimation).
- P&A does not charge a fee or benefit in any way from you using a DAF.
Individuals embarking upon the sale of a company or real estate will likely create a large tax liability in that particular calendar year. If an individual is charitably minded, wants to minimize their tax obligation, and increase their gifting power, they should consider a DAF.
Below is an example of a business owner (Michael) who decides to donate 10% of his ownership before the sale of his company (which triggers the capital gains tax). Under this example, Michael would reduce his tax obligation by $664,496 and increase his gifting power by $476,000. Key to this is ensuring the remaining 90% proceeds, less tax, allow the business owner to fulfill all other life financial goals. (That is where a P&A Financial Plan can help.)
If you’re contemplating the sale of a business or other highly appreciated asset, and you’re charitable, let’s continue the conversation about how a DAF might be able to help you reach your goals. – Trey