With life passing by and elders leaving behind estates, many beneficiaries of large portfolios are left with newly found assets and with that, perhaps large taxable gains. After feeling very fortunate for their financial gains, many investors may start to look for ways to “push off” significant capital gains. Though one could just gift away their Apple or Tesla or old Exxon stock, there are a few options out there that may create a longer lasting legacy. One of these items is a donor advised fund or “DAF”. This vehicle allows donors to make a charitable contribution, receive an immediate tax benefit and then gift grants to non-profits of their choosing from the fund over time.
Here at Sustainvest, we manage DAFs on behalf of clients through the Charles Schwab Charitable DAF program. If the invested amount exceeds $250,000 you can have an advisor like Sustainvest act as the investment manager and therefore be able to utilize impact and sustainable investing for your holdings along with guidance on granting. They are extremely simple to create and Schwab makes gifting to any 501c3 seamless as well. Besides a DAF, a private foundation is a nonprofit organization which is usually created via a single primary donation from an individual or a business and whose funds and programs are managed by its own trustees. A private foundation is a freestanding legal entity over which the donor retains complete control, generally with higher fees to manage. With a private foundation, there is an oversight board along with an attorney needed to create the entity.
With a DAF, often managers talk about the 3 G’s:
- Give-Make the $ gift into the DAF you create. You then receive a taxable deduction for doing so. Your accountant should most definitely be part of this conversation.
- Grow-Invest the funds with an advisor like Sustainvest (over $250,000) and work with your manager to include your values with the portfolio. This could be stocks in renewable energy, bonds that invest in “green” inititatives, or community investing through a Calvert Foundation impact note.
- Grant-Annually, speak with your family, your advisor or your shrink, if that helps, about what nonprofits match your values and then make the grants to those 501c3’s.
Donor advised funds do not have minimum payout requirements unlike a private foundation which mandates gifting 5% away annually. For these many reasons, DAFs have grown in popularity against private foundations. We do find that with clients, they actually gift more from their DAF then the required 5% (being more generous) even though this is not required. With DAFs and sustainable investing both becoming more popular, making it seamless and simple will be a priority for families of newfound wealth living busy lives who don’t want to have to deal with annual tax filings and loads of paperwork that a family foundation may bring with it. DAFs can be held indefinitely allowing account holders to “pass the torch” onto their heirs to continue the legacy of gifting. Please always consult a tax consultant first to determine if this form of tax deduction could be helpful to you. If you think a DAF may fit your portfolio objectives and estate planning needs, feel free to contact us.