Charitable Giving Strategies

Giving Smarter: The Donor Advised Fund

Zacc Call

Giving Smarter: The Donor Advised Fund

We tend to do a lot of work for charitably minded clients. Any charitable donation is admirable. Thank you for forgoing personal experiences or purchases to benefit others. You may not be asking for public recognition, but I believe you should be utilizing the tax benefits to their fullest. Some of these strategies allow you to give even more.

The common mistake is to donate assuming you will automatically get the best tax benefit for your donations. With only a little extra care, you can avoid this misstep. The following strategies are designed to compare the tax benefits of your philanthropy while ensuring that the same – or in some cases more – good is accomplished.

The simple donation

Most donations are made by credit card, check, or cash transfer. This is the least tax-efficient donation. Keep in mind that you get to include donations to charities as part of your itemized deductions; cash donations are includable up to 50 percent of adjusted gross income (AGI). Your donation and deduction are linked to the same tax year. You will list the donation in your deductions in the year during which the donation was made.

The appreciated asset donation

Some donations are made by giving an appreciated asset to the charity. The charity then sells the asset and no tax is paid on the growth of the asset by either party. For example, assume you have a stock that doubled. You then chose to donate it to a hospital. Had you sold it and donated cash, you would have had to pay capital gains tax on the growth. Donating the stock itself avoids tax on the growth and you still get to include the stock value as a deduction. The donation and deduction are linked again and both happening in the year the donation was made.

The donor advised fund (DAF)

While growing in popularity, fewer donations are funneled through a DAF. A DAF is an entity that has achieved the status of a 501(c)3, which means it is a charity. You may set up a giving account with a DAF. This is where it starts to get very flexible. You make donations to your giving account at the DAF. This is the tax year in which you get your tax deduction. Your asset is sold inside the DAF, causing no tax liability on the growth due to the DAF’s charitable status. Now you have an account which you can direct.

Either make a grant to another charity or choose to invest the DAF assets. Once you donate to a DAF, the assets may stay in the DAF as long as you like, however, you cannot get those dollars back. You gave them away to a charity. For me, this tool has been a wonderful tax strategy which allows us to deposit an amount based on our tax need for that tax year without having a specific charity in mind. Later, sometimes years later, when my kids’ schools need a little assistance, I can log in and cut the school district a small check from the DAF.

The complex asset donation

Many charities are not equipped with the risk appetite or legal counsel to receive complex assets. DAFs are in a better position for this. Over the years, I have met many business owners during an exit. This moment can create a massive tax burden. They have built a business with nearly no cost basis and are selling it all at once. DAFs have been instrumental in facilitating millions of dollars of tax savings for a few of my clients.

In order to be effective, you need to discuss this option before you have arranged the sale of your company. Read our article “Giving Smarter – The complex asset donation” if this is your situation. Most of the time, as an advisor we are striving to grow or save our clients a few thousand dollars here and there through strategic planning. There have only been a few days in my career that I can say I have saved someone between $100,000 and $1,000,000 in taxes in just one day. It has been through using a DAF on the day of the sale of their company.


How do you put this in practice? Assuming you are charitably inclined: If you have investments held outside of IRAs and 401ks, you should consider giving long-term appreciated securities instead of cash.

If you are faced with a high-income year, use a DAF to reduce that year’s tax bill and front-load some of your future years’ donations. This works great for regular tithing payers or those who are paying for future expected missionary service costs.

If you are on the brink of selling a business and are charitably inclined, talk to me about complex asset donations before you put ink on the page to close your deal. At the very least, read “Giving Smarter: The complex asset donation” in our education center.

If you are charitably inclined, over 701/2, and have IRA assets, read “Giving Smarter: Qualified charitable distributions” on

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