By: Melissa Wagner – Associate Financial Advisor
With only a few weeks until the end of the year, anticipation heightens for many of us: planning holiday gatherings, gift shopping, managing deadlines at work and the list goes on. Yet despite the task-oriented “must dos” of the season, many Americans look forward to celebrating generosity and promoting philanthropy, which takes center-stage in our country like no other time of the year.
Not surprisingly, charitable contributions increase as the year draws to an end but for many donors giving charitably is a year-round effort, especially if the mechanism by which they give offers substantial convenience and flexibility.
Convening at The Columbus Foundation—formerly home to ten Ohio governors since the early 1900s—Angela Parsons, J.D., Vice President of Donor Services and Development, and Carter Hatch, Planned Giving Officer, met with me in a classically-furnished library to discuss donor-advised funds, commonly known as DAFs.
“The DAF is a component fund of a public charity whereby the donor can recommend grants to their favorite charity,” Angela said. “With over 100 new funds this year and 1,000 existing funds sponsored by the Foundation, the DAF is one of the most popular charitable giving tools around.”
Why so popular? In a word: convenience.
Angela shared how the convenience of setting up a DAF and the flexibility in timing a person’s charitable giving makes a big difference for those charitably-minded busy individuals, families, and even corporations. Funds can be contributed to a DAF at any time enabling the donor to take an immediate tax-deduction. One convenient aspect is funds do not have to be granted to charity immediately.
“Some donors need to take their time and decide how they wish to impact their community,” Angela said. “Maybe they know they’d like to impact local social service or feeding programs, but they just don’t know which charities offer those services or who does it best.” The Foundation offers a Community Research and Grants Management team that helps to identify the most effective charitable organizations.
Another aspect of convenience and flexibility is the type of asset that may be contributed to a donor-advised fund. Its common knowledge that highly appreciated assets with a low tax basis (such as stock held for longer than one year) makes great gifts to a DAF.
Angela and Carter both smiled at this: “It’s not just cash anymore. You can contribute marketable securities, real property, LLC interests…we even had one donor contribute grain!”
Grain? Even commodities are acceptable gifts, provided the donor can allow time for an advising team to review.
What should a prospective donor know before considering a DAF? A few points to help you along your way:
- Initial Investment: For many DAF sponsors, such as The Columbus Foundation, there is a minimum initial investment. In their case, $10,000 will get you started. Others, such as Vanguard will require a $25,000 minimum investment. Fees are a consideration when starting up a DAF. The Columbus Foundation does not charge a fee to set up the DAF but there are yearly investment/administrative fees based on the value of the account.
- Deduction Amount: The deduction amount is the fair market value of the asset contributed if held for more than one year. The charitable deduction is limited to 50% of adjusted gross income (AGI) for cash gifts and 30% of AGI when contributing appreciated securities.
- Types of Grants: DAFs can be created to support public charities in good standing. No political institutions or individuals may personally benefit. Grants cannot be made to private, non-operating foundations.
What are some creative ways to maximize giving through a DAF?
- Get the entire family involved: Allow your children to make grants to charities based on their exposure to various service projects and fundraisers. This sets the stage for your future philanthropist!
- Create in memorium gifts: A great way to honor your loved one is to establish a memorial fund in that person’s honor. The DAF could be used in lieu of flowers or naming a particular charity.
- Include the DAF as part of the estate plan: A DAF can be funded at death as long as it is properly worded in your estate plan and a “fund manager” appointed to ensure your legacy continues after your death.
Angela and Carter believe that DAFs offer tremendous flexibility to today’s donor, but the real impact comes from sharing what is going on in the community and how to address problems. “The Foundation offers events throughout the year that brings light to local issues. People care deeply about what’s going on in their community,” Carter said.
The holiday season unites donors and communities like no other time of the year. With convenient tools like the DAF and charitable resources like The Columbus Foundation and many others, there is no limit to creating lasting impact.
For more information on The Columbus Foundation’s community events or donor services, please visit columbusfoundation.org. For more information on how charitable giving can enhance your financial plan, please contact your advisor.