Using Donor Advised Funds to Maximize the Value of Charitable Gifts of Appreciated Stock

March 9, 2019 By: Jackie Goldstick, CFP®

Wealth Management - Retirement Planning - NAPFA - CFP

Through a Donor Advised Fund (DAF), a donor can make a charitable contribution, get an upfront tax deduction, and then recommend what charities to support and when. Funds can be distributed immediately or over time.

In addition to the upfront tax deduction, DAFs also offer an added tax advantage when a donor makes a gift of highly appreciated stock (that has been owned for at least one year) to the Fund; the tax liability associated with the capital gain that is embedded in the security is removed. Here is how it works:

Highly appreciated stock is donated to the DAF;
The donor gets a tax deduction equal to the market value of the stock when it is contributed (deductions are capped at 30% of Adjusted Gross Income for stock contributions);
The stock is sold by the DAF – there is NO capital gains tax liability as the stock is sold by a charitable entity;
The donor advises the fund when and to whom to distribute If you are charitable proceeds.

The advantages include:

Removal of the capital gains liability from the donor’s personal tax obligation;
Ability to utilize a tax deduction for the donor; (subject to caps listed above)
A greater donation to the charity(ies) as taxes are removed.

Consider this example. Assume your Adjusted Gross Income is $200,000 and you own $100,000 worth of stock that has a cost basis of $10,000. You can:

Sell the stock and pay tax (15% or $13,500) on the $90,000 gain resulting in net proceeds of $86,500. A gift of $86,500 cash is made to the charity(ies) of your choice. You get an income tax deduction of $86,500 (cash deductions are limited to 60% of Adjusted Gross Income); or
Gift the stock to a Donor Advised Fund. The DAF sells the stock and makes a cash gift of $100,000 to the charity(ies) of your choice. You get an income tax deduction of $75,000 and you avoid having to pay any capital gains tax.

If you are charitably inclined AND you have highly appreciated stock in your portfolio, a Donor Advised Fund is a vehicle worth exploring. Contact us for more information and to determine if a Donor Advised Fund is right for you.

Core Wealth Management is a fee-only wealth management firm located in Jupiter, FL. Our CFP® professionals provide investment management, financial planning and advisory services, while always strictly abiding by the highest fiduciary standards. For more information, contact us today at 561-491-0231.

Jackie Goldstick, CFP® is the Director of Financial Planning at Core Wealth Management. She is a member of the National Association of Personal Financial Advisors (NAPFA) as well as the Financial Planning Association (FPA).

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