Remove Complexity from Complex Assets
Submitted by American Endowment Foundation on April 4th, 2016
By Eric Kinaitis
An article in Kiplinger looked at the growing popularity of complex assets used to fund charitable giving. This increase illustrates the ongoing shift in generational wealth that is beginning to occur.
Although complex assets may be regarded as a problem for charitable giving, the real issue is not so much the assets in question, but the lack of understanding on how to convert the asset into cash that the charitable organization can put to use.
Many charities simply may not have the expertise on how to convert such an asset. Many trusted advisors and their clients may not realize that donating something besides cash is even an option for their charitable giving.
A donor advised fund (DAF) can be the perfect tool in converting complex assets such as closely-held stock, land, life insurance and other such assets into charitable good, and do it in a way that is easy to implement and tax-smart as well.
Listed below are guidelines on how DAFs can make the following complex assets less complex:
Closely-held shares: Nearly half of U.S. corporations are classified as S-corporations, representing assets of over $3 trillion. Coupled with another 1.7 million C-corporations, as well as limited partnerships and LLCs, and the amount of illiquid wealth trapped in private shares is substantial.
Land: Many donors may regard real estate that they own as being of being of charitable value in only one of two ways:
- Either selling the property and donating the cash proceeds to the charity
- Donating real estate for a specific-use purpose, such as donating a warehouse to a food bank to support their mission, or a piece of vacant land to a neighboring park system, etc.
However, donating the value of real estate (regardless if it’s a structure or vacant land) can be done in innovative ways through the use of a DAF. Learn more at: Real Estate
Life insurance: Purchasing life insurance for estate liquidity reasons has been a standard practice for many years. However, with the proper structure, life insurance can help create a zero-tax estate plan by gifting the policy into a donor advised fund. This helps a donor achieve charitable good greater than the more common method of gifting either cash or marketable securities. Learn more about the varied ways that life insurance can be used for charitable good: 4 Ways to Donate Life Insurance
Grain: The donation of agricultural commodities provides a particularly innovative way to turn a physical, perishable item into charitable impact.
A farmer can enjoy the tax break on the production cost of the crop they grew, and as well as create a DAF that is funded by the sale value of the crop that was sold. View the following link to learn more: Example Scenario – Donation of Grain
Donor advised funds can prove to be an innovative and powerful tool in turning a complex asset into an easier means of charitable giving and a smart source of tax planning. Contact us or call 1-888-660-4508 and let us discuss your circumstances; we look forward to helping you find a solution.