The power and flexibility of a Donor Advised Fund


Tyler Mickey, CPA, MST
Senior Tax Manager, Moss Adams LLP

I have been working with clients for over 25 years and I have found that Donor Advised Funds (DAFs) like those managed by the Community Foundation of NCW offer some of the best opportunities for not only substantial tax savings but also the ability to carry out your charitable intentions.
Some time ago, I was talking with a client who had worked at a publicly traded technology company for many years. The appreciation in some of the stock he held was about 100%. On the verge of retirement, we discussed his future goals as well as estate planning and charitable giving. The client said that he and his wife gave consistently every year, about $15,000 to their favorite organizations, and did not see this changing. These gifts had always been in cash. Since he did not have a mortgage and they were capped at $10,000 for deducting state and local taxes, he was receiving very little benefit from their annual charitable giving since his total itemized deductions were around the standard deduction for a married couple ($25,100 for 2021).
I suggested an alternative for leveraging his highly appreciated stock. Instead of giving his cash to charity, why not give multiple years’ worth of highly appreciated stock to a DAF? Since he had held the company stock for more than a year, a gift to a qualified charitable organization would result in a tax deduction of the fair market value of the stock. By gifting the stock, he could avoid the long-term capital gains tax at 20% as well as the Net Investment Income Tax at 3.8%. In addition, his charitable contribution could offset his ordinary income which was currently being taxed at 37%. The potential tax benefit was therefore 61.9% on his $100,000 gift. While this example is extreme, given the client’s tax brackets and stock appreciation,  it highlights the power of giving appreciated assets to charity. Further, by using the DAF specifically as his charitable vehicle, he can continue his regular annual giving to his favorite charities every year.
Another client of mine left a substantial amount in his will to a specific charity in which he was very involved throughout his life. After his passing, the charity headed in a new direction which the donor’s family felt was not in line with his intentions. However, there was nothing that could be done because that specific bequest was made in his will.  Had he instead established a DAF with his family as the advisors, the family would have had more latitude in advising as to which organizations the client’s generous donations went. This option might have allowed them to pause gifting to a specific organization or redirected to other causes that were important to the him. A charitable bequest at death to a DAF with family or friends listed as advisors allows the donor to better support his or her passions long past their lifetime.  
Using the Community Foundation of NCW’s DAF gives you the opportunity to maximize the benefits of charitable giving. I encourage you to consult with your professional advisor (CPA, lawyer, or financial planner) in supporting the causes you care about most.

 

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