Autumn’s brief interlude before the holiday season is a great time to thoughtfully reconsider charitable giving.
Contributing to a donor-advised fund is one way to maximize the amount available for organizations doing the work you care about, while minimizing your tax burden.
Donors can deduct the full amount of their contribution to a DAF in the year it is made, then take their time to make thoughtful decisions regarding its distribution to qualified 501(c)(3) organizations, according to Mark Cooter, managing partner of South Carolina Upstate practice for Cherry Bekaert LLP.
“You can make a tax-deductible contribution by Dec. 31, and use that to pre-fund your charitable giving to a church, school, or charitable organization for the next year, three years, or 10 years,” said Cooter, who serves on the board of the Community Foundation of Greenville.
There are a number of situations where the funds make practical sense. For example, a donor may wish to donate appreciated stock to a small charity that is ill-equipped to deal with receiving a gift of stock. Donating the stock to a DAF, which can sell it, and then making a distribution to the small charity simplifies the process. The donor gets the full benefit of the gift and a community foundation is not required to pay capital gains tax.
Since the standard deduction has increased under the new tax law, some donors may decide to make a larger contribution to a DAF in some years, and take the standard deduction in others, while keeping their distributions to charitable organizations consistent over time.
Advantages of DAFs include their ease of administration, offering professional management at a lower cost than setting up a private foundation, Cooter said.
“The fund allows you to set up a gift over a period of years rather than all at once,” he said. “It’s a way for you to make sure your wishes are followed, with someone else executing your wishes on your behalf. If you are charitably inclined, there’s no downside.”
Greenville residents Brice and Amanda Smith established their donor-advised fund in 2016.
“We chose the Community Foundation because of their unique ties to Greenville, and their established reputation for identifying and addressing the needs of our community,” Brice Smith said. “We have lived in Greenville for 20 years, and we are constantly amazed at the strong sense of philanthropy that runs so deep in our community.”
One of the organizations the couple supports is the Greenville Area Parkinson Society, which offers support, education, and advocacy for people in Greenville living with this disease.
“My father was diagnosed with Parkinson’s over eight years ago, and GAPS has been a tremendous support to him and my family,” Smith said.
Of the Community Foundation’s 250 funds, the vast majority are DAFs, said Bob Morris, president of the foundation. Donors can recommend grants to any qualified 501(c)(3) charity.
“The common characteristic of the people who establish a donor-advised fund with us is that they are smart and caring — a combination of Albert Einstein and Mother Theresa,” Morris said.
Most donors contribute cash or appreciated stock to start or add to their funds. The Community Foundation also accepts real estate and closely held stock, often as part of the sale of a large parcel or the sale of a business.
“While many mutual fund companies and banks offer donor-advised funds, the fee income we earn helps us make grants to local nonprofit organizations,” Morris said. “This allows the Community Foundation to invest in vibrant arts programming, provide academic support for low-income families, and invest in our nationally recognized public parks.”