Newsletter: Donor Advised Funds: Give now, Get now!

Newsletter: Make a donation now, Claim a tax deduction now, Decide which charity later….

“No one has ever become poor by giving.” – Anne Frank

A client who successfully sold her company wanted to donate the bulk of the proceeds to charity, but was not sure which causes she should support. A donor advised fund was an attractive alternative for her, because it allowed her to take a deduction in taxes for the donation in the current year, while holding off on the decision regarding which charities to support. Particularly appealing, was the option of pledging shares instead of cash, which avoided capital gains issues related to the sale of stock.

The increasingly popular Donor Advised Funds are the “soft” alternative in setting up charitable funds versus launching full fledged foundations. The funds are offered by many major institutions and allow the individual or company to take a tax deduction in the current year, which can be particularly useful in the case of a windfall such as the sale of a company. The donor retains the right to decide how the money will be given away at a later time.

Donor advised funds can be managed similarly to any other investment portfolio – by the donor themselves or by an investment adviser. Gains from investment continue to grow tax free, with the potential of a larger gift at the time the donation is actually made. It can be a great option for someone looking to make a gift in one year, taking the tax benefit in the same year and distributing it some time down the line.

For entrepreneurs, and investors in general, the ability to actually donate shares (besides cash, even for private companies), can get around the need to liquidate assets and deal with capital gains taxes. The deduction allowed would be the “fair value” of the shares on the date of the pledge, giving an advantage of a deduction in the current year without any consequences of capital gains taxes.