By Kyle Wetters, CFP®
Co-Founder & Managing Partner
Tenet Wealth Partners

When working with clients who are charitably inclined, it’s fun for our team to support them in their efforts to give!  Tenet Wealth Partners believes strongly in supporting charitable causes through both dollars and time, so when our clients express that same interest, we get excited to help.

While the top priority for our clients is to support the organizations and causes closest to their heart, we help develop effective strategies to make their dollars go even further making it a win for them and the charity.

Whether it’s something as straightforward as making a direct donation to an organization or considering something more nuanced like a charitable trust, there are many options to consider.  Today we’ll look at Donor Advised Funds (DAF) and Qualified Charitable Distributions (QCD).

Donor Advised Funds (DAF)

A DAF is like your own personal charitable account that helps facilitate gifting to the charities you care about when you want to give.  One attractive feature of a DAF is it’s convenience and ease of setup.  You essentially name your fund, “Mr. & Mrs. Smith Charitable Fund” for example, make charitable contributions to your fund, and when you are ready you direct the desired amounts to be distributed to the charities of your choice.  It is important to note that contributions to DAFs are considered completed gifts to charity and while you maintain control over several elements of the account, the funds are no longer available for personal use.  Below are a few of the attractive features and uses of Donor Advised Funds:  

Simplification of Administration and Record-Keeping

• Having one account from which you make your donations simplifies both the process of making your gifts, as well as your record-keeping. Since you receive a tax deduction for the year you make the contribution to your DAF, and not when the funds are distributed to the charities, you don’t have to track down the receipts from every organization to which you donated.  The DAF receipt is the only one you need!  

Tax Efficiencies

• Donating Appreciated Stock: By donating a stock position that has a large long-term capital gain, not only may you be eligible for an income tax deduction for the value of the holding, but you also avoid realizing the capital gain. 

• Deduction Timing: Another benefit of using a DAF is the ability to control the timing of your donations.  In working with your tax preparer, you may identify a year in which your income is significantly higher, and it makes sense to bunch multiple years’ worth of donations into a single year.  By timing the DAF donations strategically with your tax situation, you may be able to take advantage of a larger deduction in a year you receive the most tax benefit, while still controlling the timing of the distributions to the individual charities of your choice.

Growing Your Gifts

• Many of our charitably inclined clients enjoy the growth potential of Donor Advised Funds.  Contributions made to a DAF can be invested in a portfolio of your choosing, where you have control over the aggressiveness of that strategy.  For donors who choose to give directly to charities during their working years, establishing and contributing to a DAF over time can endow future gifting through retirement and potentially beyond.  Having a charitable bucket to pull from in retirement may allow donors to continue giving at the levels they desire. 

Leaving a Legacy

• Depending on the individual, leaving a legacy can be extremely important or not a concern at all.  DAFs can be used to support multiple charities at your passing or can be setup to involve future generations in continuing your family’s legacy.  

Qualified Charitable Distributions (QCD)

Another great option for gifting to charity if you are 70 ½ or older is through Qualified Charitable Distributions (QCDs) from a Traditional IRA.  QCDs give you the ability to donate from your IRA directly to a charity (up to a maximum of $100,000 annually) and not have the distribution count as taxable income, as would normally be the case.  When you reach age 72, when Required Minimum Distributions (RMD) are necessary, QCDs may go towards satisfying that requirement. 

With the significant increase in the standard deduction a few years ago, the ability to itemize deductions on your tax return faces a much higher hurdle.  The QCD allows you to not have to worry about itemizing, as the amount you give through the Qualified Distribution is not reported as taxable income.

 

With year-end approaching, many people are thinking about completing their annual charitable gifts.  Donor Advised Funds (DAFs) and Qualified Charitable Distributions (QCDs) are only two of the many different charitable giving strategies available to donors. 

Many times, the best plan is not in using a single strategy but combining multiple solutions and identifying what is most beneficial each year based on your specific situation.  We always recommend consulting your tax preparer to determine the tax impact of your charitable giving decisions.  At Tenet Wealth Partners, we work with our clients and their tax professionals to design charitable giving strategies that integrate their desire to support causes they cherish while maximizing the dollars donated.

Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC. Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. Advisory services offered through Sanctuary Advisors, LLC., a SEC Registered Investment Advisor. Tenet Wealth Partners is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.

The information provided in this communication was sourced by Tenet Wealth Partners through public information and public channels and is in no way proprietary to Tenet Wealth Partners, nor is the information provided Tenet Wealth Partner's position, recommendation or investment advice. This is for informational purposes only.