Help Your Client Be a Better Donor
Submitted by American Endowment Foundation on November 7th, 2016
By Eric Kinaitis
The end of the year usually brings a surge of donors who decide that this is the year to create a donor advised fund (DAF). Why does this surge happen? Because donor-clients are relying on their trusted advisors for guidance; if you have clientele that meet these criteria, a DAF may be the perfect tool for them on how best to donate to charity:
- The client has had a high income year or have sold (or are anticipating selling) an asset that will generate a large capital gain. The DAF becomes an ideal vehicle in allowing the client to donate more this year so that they may have enough to give during future years in which adjusted gross income may be substantially less.
- The client may wish to donate an illiquid asset that is not easily divided to a number of charities. A DAF can accept the donation and then make grants out to the charities in the exact amounts that the donor-client wants.
- Clients may want to donate a type of asset (life insurance, real estate, public stock, closely-held shares, etc.) that a charity does not have the expertise on how to handle. Some donor advised funds have a great deal of expertise in how to handle such an asset.
- Donors who have difficulty in keeping track of the donation receipts for the variety of charities that they give to, or unintentionally give a variety of donations throughout the year to the same charity. A DAF provides one tax receipt letter each year and usually allows for online viewing of past grants.
- Donor advised funds allow the donor to determine when the charitable deduction is claimed. Hence a gift into the DAF at the end of the year can earn the tax deduction for dollars that may not be given away until the following year.
- A DAF can help remove inherent unrealized gains by facilitating the donation of long term capital gains to charity.
- The donor wants to donate over time because they are worried that a large gift to their favorite charity may overwhelm the charity’s ability to adequately manage those funds, or wants to see the long-term impact that their gift can make. A DAF helps manage that process.
- The donor wants to give anonymously, but their existing private foundation does not allow such privacy to occur. Donors may want to donate to causes that exist outside the scope of their foundations’ stated mission. Establishing a DAF that works alongside their private foundation can solve both concerns.
- Similarly, wealthy clients who already have a private foundation may grow tired of the responsibilities of operating it.
- Those clients who own a business may look at a donor advised fund as a way for their business to be involved in charitable giving through a corporate donor advised fund.
Not only can a DAF be a useful tool for the donor-client, but it provides value to the financial advisor as well. Some donor advised fund administrators, such as American Endowment Foundation (AEF) allow the financial advisor to manage the assets within the DAF. Of particular interest, this allows the value of illiquid assets to become part of an advisors’ assets under management.
At American Endowment Foundation, we look forward to discussing how a DAF can be of benefit to your client and your business. Contact us or call at 1-888-660-4508 to learn more.
(The above article was excerpted from “How Donor Advised Funds Can Help with Year-End Planning” by Ken Nopar {Accounting Today, November 18, 2014})