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What Donor Advised Funds Mean for Your Philanthropic Plans and Tax Savings

With the expanded Standard Deduction for 2018, fewer taxpayers will need to itemize their deductions on Schedule A, and many may realize zero tax savings for their charitable donations.

There is, however, a workaround solution to benefit tax-wise from your philanthropy.

You may have noticed articles about donor-advised charitable funds in the financial press. For individuals and families who give generously to strengthen their community, these funds are the go-to tax savings strategy for 2018. Here's why.

Overview


A major disadvantage of donations made to public charities is your lack of control over when and how your contributions will be spent. Donor advised funds address this concern by allowing you to set up your own charitable giving fund in the form of an account with a Charitable Fund or a local Community Foundation. You can then recommend how the money in your account should be spent by designating your favorite charities, how much they should receive, and when.

Why Now?


This past June we met for mid-year planning with one of our married clients, Diane and Jack. Both are in their later 50's, upper middle-class with a home that is paid off. For the past several years, they have made around $15,000 in annual donations, mostly to their church and a handful of nonprofits.

With the increase in their Standard Deduction to $24,000, we showed them how their annual pattern of donations would not yield any tax savings for the foreseeable future. As an alternative, we recommended creating a donor advised fund with 5 years worth of donations, or $75,000 during 2018. In addition, they are going to use mutual fund investments from their portfolio to reach that threshold. This large deduction will save Diane and Jack $17,000 in Colorado and Federal income taxes, or more than enough to fund a single year's worth of donations. They will also avoid recognizing a $40,000 capital gain on their investments, which would otherwise create a liability of $7,800 for Colorado and Federal income taxes.

Even better, the $75,000 residing in the donor advised fund will be professionally managed for growth. Not only will their fund continue to grow, the income earned in the fund won't be subject to income tax. They will save a lot of tax this year, and avoid tax down the road.

How to Get Started


Donor-advised funds offer a nice package of advantages for charitably inclined individuals who wish to make substantial or multiple-year charitable donations. With the 4th quarter of 2018 right around the corner, now would be a good time to set things in motion.

Several of the big investment firms (e.g., Schwab and Fidelity) have created their own Charitable Funds.

Frankly, we prefer working with local Community Foundations due to their high level of personal service, knowledge of our communities and local management. Our local Community Foundations are both high-touch and high tech.

Links are provided below to the Community Foundations in the communities we serve:

If you have questions or want more information on donor advised funds, please give us a call.  We welcome the opportunity to help you put together a charitable giving plan that suits your goals.


Contact Us

Loveland

(970) 667-1070
762 W Eisenhower Blvd
Loveland, Colorado 80537

Estes Park

1182 Graves Avenue
Unit C-1
Estes Park, Colorado 80517

Katy

(281) 665-7973
21398 Provincial Blvd
Katy, Texas 77450