Ideas to Impact Blog

Insights from the Impact Fund – Investment Options Q&A with Marie Ruzek CFRE, Vice President - Philanthropic Services, Wells Fargo Private Bank

MarieRuzek-wells fargoHow donors can maximize year-end tax advantages by giving to a DAF now and then engaging in strategic philanthropy for greater impact.

Q: What are the key tax advantages to donors who use a donor-advised fund (DAF) for year-end giving, and how can they make the most of these advantages?

Choosing to donate low basis stock with long-term capital gains will put donors in a position to potentially forgo any capital gains tax that may have been due if sold, and on top of that the donation is eligible for a charitable income tax deduction.

The biggest missed opportunity I see is for donors with privately-held stock or real estate. Similar to choosing low-basis publicly traded stock, other long-term capital gain property, like real estate or business interests, may be the best asset to choose for charitable contributions. Donors should consult their tax advisors to assess their personal situations.

With the Tax Cuts & Jobs Act of 2017, bunching 3-5 years of annual charitable contributions has been a popular strategy with taxpayers who want to be able to itemize their charitable contributions.

Q: What are some innovative ways to think about giving using a donor-advised fund?

Many families of wealth choose to use a donor-advised fund as an alternative to a private family foundation, by using a family meeting structure to engage their children in discussion around their family’s values, what is important to them, and how they plan to make an impact with their charitable giving. We’re also seeing families who already have private foundations layering in a donor-advised fund to create a “junior board” to educate the next generations on finances, wealth, and the importance of giving back. A donor-advised fund can also provide anonymity whereas a private foundation cannot.

Q: How can having a donor-advised fund help donors be more purposeful in their giving, and make philanthropy a larger aspect of their lives?

We see many generous families of wealth using a donor-advised fund to focus their giving and use it as a way to be more intentional with the impact of their charitable donations. Donors want to see that they are making a difference. In many cases, donor-advised funds can provide the lens through which their donations can be better evaluated and offer insights into whether their donations are having the desired impact.