March 21, 2025 • 29 mins
Donor Advised Funds – If you are charitably inclined, you are likely interested in
maximizing your contribution to your favorite organizations while realizing the largest
potential tax reduction. Chris Boyd, Jeff Perry, and Russ Ball dig into the benefits of
using a Donor Advised Fund to help with your charitable giving with a flexible strategy
that can offer significant income tax savings. The trio also discusses the legacy benefits
of including family members with the decisions of a family-centered Donor Advised
Fund. If you would like to receive a complimentary guidebook of Donor Advised Funds,
please contact Chris Boyd or Jeff Perry, by clicking the following link:
https://www.wealthenhancement.com/s/advisor-teams/amr
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
The following is paid programming.
Welcome to Something More with Chris Boyd.
Chris Boyd is a Certified Financial Planner Practitioner
and Senior Vice President and Financial Advisor at
Wealth Enhancement Group, one of the nation's largest
registered investment advisors.
We call it Something More because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
(00:21):
life issues that make the money matters matter.
Welcome everybody, thanks for being with us for
another segment of Something More with Chris Boyd.
I'm here with Jeff Perry and Russ Ball.
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We are all of the AMR team at
Wealth Enhancement Group and glad to have you
with us for another segment.
Today, we're talking about donor advised funds.
This is one of the, I think it's
starting to get more traction, but this is
a well-kept secret.
I love donor advised funds as a resource,
as a tool, we're going to talk about
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some of the details about how they work,
some of the pros and cons, and some
of the things to think about if you
were to consider using a donor advised fund.
Why would someone consider a donor advised fund?
There's probably a lot of reasons.
I'm going to start with, one of them
has to do with current tax law and
that current, you want to hit on that
(01:24):
Jeff?
Well, I didn't mean to steal your thunder.
No, go right ahead.
Go ahead.
Well, since the Tax Cut and Jobs Act
and the reductions in taxes and all those
changes that were made, charitable deductions, if you
take the standard deduction, which most people do,
you don't get to deduct individual contributions to
(01:46):
charities.
Right.
It's tough to get up to these levels
of deductions to make it worth your while
not to take the standard deduction.
Right.
So a reason, not to go on a
tangent, a reason to use a donor advised
fund is you can contribute all at once.
You can like- You can bundle as
(02:07):
they say, right?
Yeah.
Multiple years.
If you give $5,000 a year to
charities and you have the available cash, you
can like say, okay, I'm going to $50
,000 for the next 10 years and you
can put it in a donor advised fund.
Doesn't mean you're going to give it all
away, but you've donated it to the fund.
Therefore you qualify to deduct that $50,000
(02:31):
as a charitable contribution and the decisions where
it goes can be made later.
Yeah, essentially that's it.
So we should talk about what a donor
advised fund is in just a second.
We'll backtrack a little bit.
But this is one of the motivators.
I can make a single charitable donation to
this donor advised fund that essentially I can
(02:52):
have control, and I'm putting air quotes around
that, in the sense that I can later
on identify, advise where I want that money
to go.
That's the A in donor advised fund.
I can say, I want to, let's say
for example, I have a charity that I
like to give to, the XYZ charity, the
(03:13):
church of whatever, the hospital, the college, you
can fill in the blank, right?
If I, and maybe I do multiple charities,
I don't just do a single charitable, I'd
say I do all of those.
But in a given year, I don't give
so much that I would benefit from getting
more than the standard deduction.
(03:35):
Right.
So I can give multiple years to this
donor advised fund, get more than my standard
deduction because of that circumstance, because of the
charitable deduction that I might benefit from by
contributing that to this donor advised fund, and
then dole it out over years, two years,
three years, five years, whatever it happens to
(03:56):
be that I might have otherwise bundled in
this situation.
It allows me to get the benefit of
the standard deduction and periodically the charitable giving
deduction that I want to have enhanced tax
benefit from, which ultimately people don't just give
(04:17):
for a tax benefit, but if you can
- It's free giving anyway.
Right.
Yeah.
Right.
Might as well.
So, okay.
What's a donor advised fund?
Russ, you want to like start us off
or you want me to do it?
I'm putting you on the spot.
Why don't you start it off?
All right, start us off.
So, the essence of a donor advised fund
is a charitable entity, it's usually offered by
a foundation, lots of brokerage platforms offer these,
(04:41):
there are others.
So we've had exposure with the American Endowment
Foundation, there's charitable funds with Schwab and Fidelity
and lots of others, like Local, Cape Cod
Foundation we've had on many times as a
guest on our show.
All of these offer a donor advised fund.
(05:02):
Okay.
So essentially you could create your own fund
like an endowment of sorts, but a lot
less administrative headache.
So- Virtually none, right?
Well, it's minimal, right?
And so essentially, yeah, virtually none.
So I can, there's some costs associated with
it, but ultimately it's modest.
(05:24):
We'll talk about that in a minute or
two.
The essence is though, I can create this
fund and in this fund, I get to
put the funds I want into it.
I can do stocks or securities of different
kinds, or I could put in, sometimes I
could put in things like real estate or
things that might be sometimes difficult to transact.
(05:46):
It depends on where I'm doing it and
what they- What their rules are, right?
Yeah, but cash can be put into it
as well, but we might be inclined to
want to use highly appreciated assets as a
preferred tool to put into it.
I often think of someone creating the fund
with a highly appreciated asset, like a stock
(06:07):
they've had forever.
That's right.
That's a great example of like, why would
you, now, why would you do that?
Maybe to elaborate on that.
Yeah.
You don't sell it, technically.
You are donating it, so you never have
the capital gains that are embedded in that
long-term held stock.
In the process, you get the benefit of
the full market value as what's considered the
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contribution, so you've avoided that big capital gain.
The charitable fund, the donor advice fund, doesn't
pay taxes on it either.
They just get the stepped up basis.
They get it because they're not taxed as
a- Right.
They never get it, right.
They just get to turn around and trade
the transacted stock to make it useful if
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we wanted to give cash or whatever.
It's as good as cash.
Or they could, then that's some choices we'll
talk about in a minute, how the money's
held once it's donated into the donor advice
fund, but there's not a tax event for
the charitable entity.
Or for you.
Or for you.
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So, that's appreciated to be able to use
these highly appreciated assets as a way to
do it.
In any case, so the fund essentially says,
okay, we'll accept these assets and then you
can leave them in there for a while
or you can turn around and donate them
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immediately.
Or as we said, I want to dole
it out over, I put five years worth
of my charitable giving into a single occasion.
Oh, great.
You can dole out five years or whatever
it might be if you wanted to.
Sometimes people do these because they want the
charitable deduction, but they really don't know exactly
what they want to do for the charitable
(07:57):
intention just yet.
And we can talk about that in a
moment as well.
I think that's something that's worth talking about,
the non-financial benefits of a donor advised
fund values and benefits.
So just going back to conceptually, the fund
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is created.
You put the assets in, you get immediate
benefit from a tax planning point of view,
and then you can choose to dole it
out quickly, gradually, leave it for a while
and then donate it.
You have all these options available to you.
So ultimately it is intended, keep in mind,
(08:42):
this is charitable giving.
What you donate to a donor advised fund
is not your money anymore.
It is going to charitable intention, whether it
does it immediately or indirectly through this donor
advised fund, it gets there later.
But it does have the opportunity to compound
and grow.
(09:02):
So you could, in some instances, you can
invest that money and later on make that
donation.
Now one of the things I was starting
to make mention of is the values component
of this.
This is part of the thing I like
best about these donor advised funds.
You like this too, Jeff?
I see you like that.
(09:23):
So the idea is like, okay, I want
to instill values in my family, perhaps.
I want to pass on not only wealth,
but a value system of like one of
the things that we do as a family,
we want to say, imagine the person saying
in their mind, I want to instill community
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values.
I want to instill the notion that we
do for others.
So they might create this donor advised fund,
not strictly as a tax benefit, though it
has that.
But also with the notion of saying, okay,
as part of our planning, we're going to
pass on values of, hey, this is important
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to us to make a priority of giving
to our community or whatever it might be,
certain causes or priorities.
So family, let's together come up with a
plan each year as to who we're going
to prioritize for our charitable giving through our
(10:28):
donor advised fund.
And so there's an opportunity for parents and
children that picture these as adult children, but
could be young children to say, hey, let's
do this collaboratively.
And as I think about my family, I
think, gosh, this could, if we do this,
(10:50):
this could be challenging because we have some
of my family, we have very different priorities
in our charitable giving.
Our political alignments are very different.
Our priorities as far as like who should
we be donating to could be very different.
So on the one hand, that could be
a great exchange of ideas.
On the other hand, it could be challenging.
(11:11):
But I think that that's probably a value
to the idea of saying, okay, how do
we deal with things when we don't agree?
Yeah, you know, like that context.
Right.
Yeah.
Right.
So in any case, you know, I could
see, you know, family saying, yeah, let's let's
this be like really important to me.
And then how do we respond to that?
Okay, well, let's do what's important to you
this year.
(11:32):
Like a mini board.
It's important to you next year.
Let's do what's important to you another year.
You know, we could go through the family.
You know what I mean?
I love it.
Yeah.
And similarly, you could otherwise say, no, no,
we want consensus.
What can we all agree on?
You know, that's another.
But these are the kind of things you'd
have that opportunity to deliberate about and periodically
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make decisions around.
The big picture, though, is that notion of
what are you saying to your family by
saying I've dedicated assets, I've allocated money to
this priority, which I think I want to
say, I hope you will have as a
priority to that we care about community and
(12:17):
we want to be able to give back
in various ways.
You know, I love that.
The other thing I like about the donor
advised funds is that it doesn't lock you
into a specific charity.
You know, let's let's say I'm imagining this
scenario and your kids are growing up and
they have maybe let's say you say, all
right, each kid is going to get X
amount of dollars from this donor advised fund
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to this charity.
So you can divvy it up rather than
doing everything into one charity in one year.
That's right.
So you have a lot of flexibility once
the money is in the donor advised fund.
And then as your kids, for example, grow
up, their priorities might change.
They might have different charitable leanings that that
they like, a different organization or they want
to contribute to something else.
Yeah.
Charitable organizations change, too, right?
(13:00):
You know, maybe I don't necessarily want to
give to that because that that's that's evolved
or that's changed or maybe it's focused, has
moved on or something.
That certainly happens.
Or that charity isn't as efficient with the
dollars they spend.
We want to look at who's who's having
the most impact, you know, right.
I think that notion of impact investing or
something new comes to light, you know, some
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new cause or something, you know, in the
family, you know, something you're affected by, something
that's happened to the family, thinking of an
illness, maybe.
Right.
Okay.
Now we want to prioritize donating to a
cause that affects research for cancer or, you
know, fill in the blank.
Right.
Right.
Yeah, exactly.
So these are all kinds of reasons that
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people create donor advised funds on a personal
level.
I'll share when my sister passed away.
One of the things we did was we
we contacted the local foundation, Cape Cod Foundation,
and created a donor advised fund.
They collected all these little donations from all
these people who gave checks for twenty five
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dollars or whatever it was.
Right.
And then, you know, others that were more
substantial from family and so forth.
And each year, Kristen and I and other
members of our family donate to the donor
advised fund and have have that continue to
grow.
For many years, we did that as a
(14:25):
scholarship for local families because, you know, Bonnie
was lived in Mashpee.
And so we did something through the Mashpee
High School now that, you know, everyone's out
of that age range.
We've kind of moved to change the focus
to things around.
(14:45):
Sometimes she died of melanoma.
So, you know, it's melanoma research.
Someone in the family has MS. We've done
stuff around MS, you know, and so forth.
You know, you can kind of prioritize.
So what do we want to do?
There was my my sister was athletic or
the kids were now adults, but or athletic.
So there was something they were doing.
(15:07):
The Cape Cod Foundation suggested there's a fundraising
campaign for a YMCA further down the Cape.
Maybe that would be something we wanted.
So, OK, that's a good suggestion.
So there's all kinds of things that you
can kind of say.
What's our theme?
What's our priority?
And sometimes evaluate, well, what we want to
do.
We've had clients where we've been involved, not
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with a scholarship intention, but with charitable giving
and so forth, where we've been investing their
funds for them when it's not being donated.
So through this donor advised fund, we continue
to be involved, trying to grow that wealth
that's ultimately going to go toward charitable intention.
(15:55):
And I think that's been kind of a
plus.
Someone says, all right, I know I want
to put some money aside.
I have these highly appreciated shares or I've
got too much in my company stock or,
you know, whatever it might be.
There can be different reasons.
Let's oh, there's a potential change in the
tax law.
(16:15):
Let's take some money and put it into
the donor advised fund.
It's good for our charitable deduction that we
want this year.
Great.
Boom.
You know, in there now we can change
how it's invested, invested however we want.
And off it goes.
Years later, they can be making donations to,
(16:37):
you know, charity of choice, college, hospital, any
kind of nonprofit.
Now that raises a question of this is
donor advised.
Just because you want something to go to
a particular cause doesn't mean it can necessarily
go to that cause.
Right.
(16:58):
Most foundations will look at this and say,
well, is it an actual nonprofit?
You know, or a three B, et cetera,
type of filing.
Yeah.
No, that's not the right.
Yeah.
That's what it is.
Right.
For three.
A nonprofit.
Right.
(17:18):
501 C3.
501 C3.
Sorry, I get my numbers.
Thank you.
501 C3.
403 B is the retirement account for nonprofits.
Thank you.
501 C3 type charitable entity or similar.
Right.
And so they'll look for that kind of
status.
But there are, you know, churches, hospitals.
(17:38):
It's really broad.
Charities of, you know, but legitimate charities.
OK.
It does not necessarily get to go directly
to.
All right.
There's this poor person, this homeless person on
the street.
I really want to help them out.
Right.
We can't do that through a donor advised
on a foundation might be able to do
that.
But a donor advised fund that goes to
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charitable organizations that they might deal with that
person on the street.
But indirectly, I think most families understand that
you can't give it to a person, but
it comes up.
There is a difference between a nonprofit entity
and a charitable entity as determined by the
IRS.
So sometimes someone may see a nonprofit and
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think that they can receive charitable donations that
are deductible or qualifying.
And sometimes they're not.
Well, you mentioned 501.
There's lots of different 501 type classifications and
some may be eligible and some may not
be eligible.
Some are related to education, you know, for
and so forth.
So it's go go in with your eyes
(18:42):
wide open that perhaps you could run into
a charity or if there is a specific
charity that you intend on using, bet that
out before you enter.
Yeah, advice fund.
And keep in mind, there's a couple of
things that we might want to think about
when selecting a donor advised fund.
One is, does the donor advised fund have
some of these rules about donation?
(19:03):
Right.
We came across one recently that was going
to require that if you didn't make a
donation within three years, they were going to
start making donations for you.
If and if if you had made a
donation, they'd use whoever you had most recently
donated to.
If not, they would make their own assessment,
(19:25):
you know.
So there's rules in some of them.
Yeah.
So that's one kind of thing.
Oh, is there a requirement around that?
Two is maybe when it comes to these
donations, you know.
It's advised, you're saying I'd like to go
to this and it is at the discretion
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of the trustees, essentially of the of the
foundation to decide is that something they're going
to they're willing and able to do.
So, you know, keep that in mind.
Another thing to be tuned into is can
I move the fund?
If I'm not happy with this fund, this
foundation, can I move it to that fund
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foundation?
You know, so there are times you can
do that.
And it's essentially just another charitable gift in
effect from A to B.
So like a transfer.
So these are things to be tuned into.
Russ, maybe you did a little just preliminary
review of some of the differences and cost
(20:28):
and so forth.
What are some of the other variables that
might come to your mind?
Well, I think, you know, when people are
talking about these donor advised funds, they may
sound, you know, fancy and, you know, the
high minimums and that kind of thing.
Yeah.
For a lot of the donor advised funds,
like through Schwab has a donor advised fund,
Fidelity you mentioned, I think Vanguard has one.
(20:51):
And these are the minimums to start a
donor advised fund are really quite low for
the most part.
To have professional management within the fund, it's
a little bit higher.
It can be a little bit higher, but
just it's pretty accessible to most to most
investors out there.
And just the idea to have even people
(21:11):
who are donating on a monthly basis, I
know a lot of people who do, they
have like a basically part of their budget
is their donation month to month.
Yeah.
And they can, you know, front load a
donor advised fund at the beginning of the
year, have that money grow tax free in
a relatively safe invested vehicle if they choose
to do so and choose which charities they
want to distribute to throughout the year.
(21:33):
I think that's a really great option for
those people who have charitable inclinations and want
to do that throughout the year.
But yeah, as to, you know, some of
the fees, I don't know if we want
to.
Yeah, why not?
I mean, just this is preliminary research.
These things can change.
We just were looking at it recently, a
few few different firms.
(21:54):
And keep in mind, there's there's countless community
foundations and other options.
We're just talking about some of the ones
that are in our orbit that we've looked
at recently that relate more to the kind
of circumstances we are involved with, where we
stay involved in the management of the investments
as well.
(22:14):
But yeah, what were you going to say?
So it looks like the typical expense rate
is about 60 basis points on the first
500 thousand or so.
So that's a reasonable pretty big range.
Yeah, you will see it will be 0
.6 percent, 60 basis points, 0.6 percent
rate of charge.
(22:35):
And then if you have an investment manager
involved, they choose to probably charge something on
top of that.
Right, right.
So that's just the administrative fee for the
donor advised fund that's handling the contributions.
Yeah, yeah.
So it scales down from there quite considerably.
But I mean, from what I was seeing,
I thought it was pretty competitive.
You know, 6.6 is quite reasonable compared
(22:59):
to even some mutual funds that are out
there.
So yeah, there's some administrative costs.
And I think, you know, again, how where
you do this can vary and the scale
of the amount you're involved with can vary
the some of these costs as well.
And, you know, I mentioned like some will
(23:21):
allow you to the community foundation will allow
you to have a scholarship.
Well, most of the ones that a charitable
fund that is through a brokerage platform, they're
not going to do that.
Right.
It's a different kind of scenario.
So, you know, you have to identify what
are you trying to accomplish?
We will help define where it might make
sense to work.
(23:42):
One other detail I want to mention.
So you're mentioning that the contribution is deductible.
And so it's deductible in the year that
you make the donation to the donor advised
fund.
So let's say as an example, let's say
you make $100,000 every year.
So if you do a cash donation to
the donor advised fund, 60 percent of your
(24:05):
adjusted gross income is is deductible.
So you can donate if you're making $100
,000, let's say that's your adjusted gross income.
You can make a donation of $60,000
when you're in that could all be deducted
off your gross income.
So I count as a charitable contribution that
you get to take a deduction for.
Right.
And if you're doing the same with appreciated
(24:27):
stock, it's 30 percent.
So and that's the market value, the present
market value of the contribution.
So so there are differences and this changes
from there have been times this was different
amounts of different years.
I remember just a few years ago, there
were some differences in these numbers.
I think it was at the start of
(24:48):
the Secure Act or something along those lines.
I forget which which which law came into
effect that caused that.
But keep that in mind, you know, that
what it has been and what it will
what it what it is currently may not
always be the same.
But it's a good point.
So, you know, that there's some incentive to
use cash in that scenario.
(25:08):
On the other hand, there are some virtue
to using stock and that we get to
avoid the capital gain.
It doesn't have to be all or one.
Can I.
And I think, you know, there's other types
of assets.
Sometimes people have real estate.
Sometimes people have art.
People are going to be all kinds of
interesting things that might cause people to consider
(25:30):
use of a donor advised fund.
All right.
So some costs ongoing, but, you know, the
other thing is, like, is it is a
perpetual or can someone doesn't want someone use
this for a period of time and then
be done with it?
Well, it could be either.
Right.
Yeah, it could be something that's circumstantial and
(25:51):
then you're done or it could be something
that you're saying, hey, I want to have
this live on for many years for legacy
purposes.
Right.
There's one other reason that some families decide
to do it or individuals.
This can be done confidentiality confidentially, meaning, you
know, sometimes people want to be philanthropic, but
they don't really want for whatever reason.
(26:13):
They don't want their name associated with the
contribution that they give.
Yeah.
Either they don't want a bunch of people
asking for more or or they they don't
necessarily want the recognition.
Yeah.
Well, there's there's an endless list of reasons
why people want to keep things private.
And you can do that through a donor
advised fund.
You can make the donation to the charity
(26:33):
without disclosing your name.
Some and there's different rules for foundations, so
they have obligations that they have to disclose
certain amounts of donations.
So if you wanted to be strictly confidential
and private, a donor advised fund might be
a good choice.
So, you know, let's just mention a couple
(26:55):
of things as we wind down.
You know, you're not going to be an
expert from a quick podcast, but definitely keep
this on your radar, something you might want
to learn more about, maybe take take advantage
of, make use of doesn't require you don't
have to be a millionaire, you know, kind
of big numbers to think about something along
these lines.
But it's you know, it is something you
(27:17):
you probably want to have certainly discretionary money
you're willing to donate to charitable intentions.
But there's tax benefits, there's charity benefits, there's
control.
There's a whole bunch of considerations and legacies
we're just talking about.
If you want to learn more, there's a
nice we've got a nice little brochure.
We got it on the screen for those
watching on video.
(27:39):
And you can check this out if you'd
like to get a copy of this.
Reach out to us.
We're giving it away.
It's just a little bit of information about
donor advised funds.
Give you a little bit of the basics.
But I think it's a good good thing
to consider.
Reach out to us.
Probably easiest ways to connect with us through
(27:59):
our email address.
You can just connect to us with an
email saying amr-info at wealthenhancement.com.
Send us that.
Give us a call 866-771-8901.
Just let us know you're interested in the
(28:20):
donor advised fund brochure.
We'll send it to you by email.
Or if you prefer, let us know if
you want it in print.
We'll we'll print it out for you and
send it to you that way.
But just let us know what you're interested
in and think you'll benefit from it.
Anything to add, guys, as we wrap up?
No.
All right.
Well, that's donor advised funds.
(28:41):
Hope you take advantage of it if you
need help.
Look, as I mentioned, we certainly offer these
as something we help with our clients who
do want to have, you know, a donor
advised fund, but may want it to continue
to grow over time.
We can be a resource to you or
certainly point you in the right direction if
it's something you want a little guidance on.
(29:02):
So thanks for listening.
Until next time, keep striving for something more.
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(29:23):
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(29:44):
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Welcome to Something More with Chris Boyd.
Chris Boyd is a Certified Financial Planner Practitioner
and Senior Vice President and Financial Advisor at
Wealth Enhancement Group, one of the nation's largest
registered investment advisors.
We call it Something More because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
(00:21):
life issues that make the money matters matter.
Welcome everybody, thanks for being with us for
another segment of Something More with Chris Boyd.
I'm here with Jeff Perry and Russ Ball.
(00:42):
We are all of the AMR team at
Wealth Enhancement Group and glad to have you
with us for another segment.
Today, we're talking about donor advised funds.
This is one of the, I think it's
starting to get more traction, but this is
a well-kept secret.
I love donor advised funds as a resource,
as a tool, we're going to talk about
(01:03):
some of the details about how they work,
some of the pros and cons, and some
of the things to think about if you
were to consider using a donor advised fund.
Why would someone consider a donor advised fund?
There's probably a lot of reasons.
I'm going to start with, one of them
has to do with current tax law and
that current, you want to hit on that
(01:24):
Jeff?
Well, I didn't mean to steal your thunder.
No, go right ahead.
Go ahead.
Well, since the Tax Cut and Jobs Act
and the reductions in taxes and all those
changes that were made, charitable deductions, if you
take the standard deduction, which most people do,
you don't get to deduct individual contributions to
(01:46):
charities.
Right.
It's tough to get up to these levels
of deductions to make it worth your while
not to take the standard deduction.
Right.
So a reason, not to go on a
tangent, a reason to use a donor advised
fund is you can contribute all at once.
You can like- You can bundle as
(02:07):
they say, right?
Yeah.
Multiple years.
If you give $5,000 a year to
charities and you have the available cash, you
can like say, okay, I'm going to $50
,000 for the next 10 years and you
can put it in a donor advised fund.
Doesn't mean you're going to give it all
away, but you've donated it to the fund.
Therefore you qualify to deduct that $50,000
(02:31):
as a charitable contribution and the decisions where
it goes can be made later.
Yeah, essentially that's it.
So we should talk about what a donor
advised fund is in just a second.
We'll backtrack a little bit.
But this is one of the motivators.
I can make a single charitable donation to
this donor advised fund that essentially I can
(02:52):
have control, and I'm putting air quotes around
that, in the sense that I can later
on identify, advise where I want that money
to go.
That's the A in donor advised fund.
I can say, I want to, let's say
for example, I have a charity that I
like to give to, the XYZ charity, the
(03:13):
church of whatever, the hospital, the college, you
can fill in the blank, right?
If I, and maybe I do multiple charities,
I don't just do a single charitable, I'd
say I do all of those.
But in a given year, I don't give
so much that I would benefit from getting
more than the standard deduction.
(03:35):
Right.
So I can give multiple years to this
donor advised fund, get more than my standard
deduction because of that circumstance, because of the
charitable deduction that I might benefit from by
contributing that to this donor advised fund, and
then dole it out over years, two years,
three years, five years, whatever it happens to
(03:56):
be that I might have otherwise bundled in
this situation.
It allows me to get the benefit of
the standard deduction and periodically the charitable giving
deduction that I want to have enhanced tax
benefit from, which ultimately people don't just give
(04:17):
for a tax benefit, but if you can
- It's free giving anyway.
Right.
Yeah.
Right.
Might as well.
So, okay.
What's a donor advised fund?
Russ, you want to like start us off
or you want me to do it?
I'm putting you on the spot.
Why don't you start it off?
All right, start us off.
So, the essence of a donor advised fund
is a charitable entity, it's usually offered by
a foundation, lots of brokerage platforms offer these,
(04:41):
there are others.
So we've had exposure with the American Endowment
Foundation, there's charitable funds with Schwab and Fidelity
and lots of others, like Local, Cape Cod
Foundation we've had on many times as a
guest on our show.
All of these offer a donor advised fund.
(05:02):
Okay.
So essentially you could create your own fund
like an endowment of sorts, but a lot
less administrative headache.
So- Virtually none, right?
Well, it's minimal, right?
And so essentially, yeah, virtually none.
So I can, there's some costs associated with
it, but ultimately it's modest.
(05:24):
We'll talk about that in a minute or
two.
The essence is though, I can create this
fund and in this fund, I get to
put the funds I want into it.
I can do stocks or securities of different
kinds, or I could put in, sometimes I
could put in things like real estate or
things that might be sometimes difficult to transact.
(05:46):
It depends on where I'm doing it and
what they- What their rules are, right?
Yeah, but cash can be put into it
as well, but we might be inclined to
want to use highly appreciated assets as a
preferred tool to put into it.
I often think of someone creating the fund
with a highly appreciated asset, like a stock
(06:07):
they've had forever.
That's right.
That's a great example of like, why would
you, now, why would you do that?
Maybe to elaborate on that.
Yeah.
You don't sell it, technically.
You are donating it, so you never have
the capital gains that are embedded in that
long-term held stock.
In the process, you get the benefit of
the full market value as what's considered the
(06:31):
contribution, so you've avoided that big capital gain.
The charitable fund, the donor advice fund, doesn't
pay taxes on it either.
They just get the stepped up basis.
They get it because they're not taxed as
a- Right.
They never get it, right.
They just get to turn around and trade
the transacted stock to make it useful if
(06:53):
we wanted to give cash or whatever.
It's as good as cash.
Or they could, then that's some choices we'll
talk about in a minute, how the money's
held once it's donated into the donor advice
fund, but there's not a tax event for
the charitable entity.
Or for you.
Or for you.
(07:14):
So, that's appreciated to be able to use
these highly appreciated assets as a way to
do it.
In any case, so the fund essentially says,
okay, we'll accept these assets and then you
can leave them in there for a while
or you can turn around and donate them
(07:35):
immediately.
Or as we said, I want to dole
it out over, I put five years worth
of my charitable giving into a single occasion.
Oh, great.
You can dole out five years or whatever
it might be if you wanted to.
Sometimes people do these because they want the
charitable deduction, but they really don't know exactly
what they want to do for the charitable
(07:57):
intention just yet.
And we can talk about that in a
moment as well.
I think that's something that's worth talking about,
the non-financial benefits of a donor advised
fund values and benefits.
So just going back to conceptually, the fund
(08:19):
is created.
You put the assets in, you get immediate
benefit from a tax planning point of view,
and then you can choose to dole it
out quickly, gradually, leave it for a while
and then donate it.
You have all these options available to you.
So ultimately it is intended, keep in mind,
(08:42):
this is charitable giving.
What you donate to a donor advised fund
is not your money anymore.
It is going to charitable intention, whether it
does it immediately or indirectly through this donor
advised fund, it gets there later.
But it does have the opportunity to compound
and grow.
(09:02):
So you could, in some instances, you can
invest that money and later on make that
donation.
Now one of the things I was starting
to make mention of is the values component
of this.
This is part of the thing I like
best about these donor advised funds.
You like this too, Jeff?
I see you like that.
(09:23):
So the idea is like, okay, I want
to instill values in my family, perhaps.
I want to pass on not only wealth,
but a value system of like one of
the things that we do as a family,
we want to say, imagine the person saying
in their mind, I want to instill community
(09:46):
values.
I want to instill the notion that we
do for others.
So they might create this donor advised fund,
not strictly as a tax benefit, though it
has that.
But also with the notion of saying, okay,
as part of our planning, we're going to
pass on values of, hey, this is important
(10:06):
to us to make a priority of giving
to our community or whatever it might be,
certain causes or priorities.
So family, let's together come up with a
plan each year as to who we're going
to prioritize for our charitable giving through our
(10:28):
donor advised fund.
And so there's an opportunity for parents and
children that picture these as adult children, but
could be young children to say, hey, let's
do this collaboratively.
And as I think about my family, I
think, gosh, this could, if we do this,
(10:50):
this could be challenging because we have some
of my family, we have very different priorities
in our charitable giving.
Our political alignments are very different.
Our priorities as far as like who should
we be donating to could be very different.
So on the one hand, that could be
a great exchange of ideas.
On the other hand, it could be challenging.
(11:11):
But I think that that's probably a value
to the idea of saying, okay, how do
we deal with things when we don't agree?
Yeah, you know, like that context.
Right.
Yeah.
Right.
So in any case, you know, I could
see, you know, family saying, yeah, let's let's
this be like really important to me.
And then how do we respond to that?
Okay, well, let's do what's important to you
this year.
(11:32):
Like a mini board.
It's important to you next year.
Let's do what's important to you another year.
You know, we could go through the family.
You know what I mean?
I love it.
Yeah.
And similarly, you could otherwise say, no, no,
we want consensus.
What can we all agree on?
You know, that's another.
But these are the kind of things you'd
have that opportunity to deliberate about and periodically
(11:56):
make decisions around.
The big picture, though, is that notion of
what are you saying to your family by
saying I've dedicated assets, I've allocated money to
this priority, which I think I want to
say, I hope you will have as a
priority to that we care about community and
(12:17):
we want to be able to give back
in various ways.
You know, I love that.
The other thing I like about the donor
advised funds is that it doesn't lock you
into a specific charity.
You know, let's let's say I'm imagining this
scenario and your kids are growing up and
they have maybe let's say you say, all
right, each kid is going to get X
amount of dollars from this donor advised fund
(12:39):
to this charity.
So you can divvy it up rather than
doing everything into one charity in one year.
That's right.
So you have a lot of flexibility once
the money is in the donor advised fund.
And then as your kids, for example, grow
up, their priorities might change.
They might have different charitable leanings that that
they like, a different organization or they want
to contribute to something else.
Yeah.
Charitable organizations change, too, right?
(13:00):
You know, maybe I don't necessarily want to
give to that because that that's that's evolved
or that's changed or maybe it's focused, has
moved on or something.
That certainly happens.
Or that charity isn't as efficient with the
dollars they spend.
We want to look at who's who's having
the most impact, you know, right.
I think that notion of impact investing or
something new comes to light, you know, some
(13:22):
new cause or something, you know, in the
family, you know, something you're affected by, something
that's happened to the family, thinking of an
illness, maybe.
Right.
Okay.
Now we want to prioritize donating to a
cause that affects research for cancer or, you
know, fill in the blank.
Right.
Right.
Yeah, exactly.
So these are all kinds of reasons that
(13:43):
people create donor advised funds on a personal
level.
I'll share when my sister passed away.
One of the things we did was we
we contacted the local foundation, Cape Cod Foundation,
and created a donor advised fund.
They collected all these little donations from all
these people who gave checks for twenty five
(14:04):
dollars or whatever it was.
Right.
And then, you know, others that were more
substantial from family and so forth.
And each year, Kristen and I and other
members of our family donate to the donor
advised fund and have have that continue to
grow.
For many years, we did that as a
(14:25):
scholarship for local families because, you know, Bonnie
was lived in Mashpee.
And so we did something through the Mashpee
High School now that, you know, everyone's out
of that age range.
We've kind of moved to change the focus
to things around.
(14:45):
Sometimes she died of melanoma.
So, you know, it's melanoma research.
Someone in the family has MS. We've done
stuff around MS, you know, and so forth.
You know, you can kind of prioritize.
So what do we want to do?
There was my my sister was athletic or
the kids were now adults, but or athletic.
So there was something they were doing.
(15:07):
The Cape Cod Foundation suggested there's a fundraising
campaign for a YMCA further down the Cape.
Maybe that would be something we wanted.
So, OK, that's a good suggestion.
So there's all kinds of things that you
can kind of say.
What's our theme?
What's our priority?
And sometimes evaluate, well, what we want to
do.
We've had clients where we've been involved, not
(15:30):
with a scholarship intention, but with charitable giving
and so forth, where we've been investing their
funds for them when it's not being donated.
So through this donor advised fund, we continue
to be involved, trying to grow that wealth
that's ultimately going to go toward charitable intention.
(15:55):
And I think that's been kind of a
plus.
Someone says, all right, I know I want
to put some money aside.
I have these highly appreciated shares or I've
got too much in my company stock or,
you know, whatever it might be.
There can be different reasons.
Let's oh, there's a potential change in the
tax law.
(16:15):
Let's take some money and put it into
the donor advised fund.
It's good for our charitable deduction that we
want this year.
Great.
Boom.
You know, in there now we can change
how it's invested, invested however we want.
And off it goes.
Years later, they can be making donations to,
(16:37):
you know, charity of choice, college, hospital, any
kind of nonprofit.
Now that raises a question of this is
donor advised.
Just because you want something to go to
a particular cause doesn't mean it can necessarily
go to that cause.
Right.
(16:58):
Most foundations will look at this and say,
well, is it an actual nonprofit?
You know, or a three B, et cetera,
type of filing.
Yeah.
No, that's not the right.
Yeah.
That's what it is.
Right.
For three.
A nonprofit.
Right.
(17:18):
501 C3.
501 C3.
Sorry, I get my numbers.
Thank you.
501 C3.
403 B is the retirement account for nonprofits.
Thank you.
501 C3 type charitable entity or similar.
Right.
And so they'll look for that kind of
status.
But there are, you know, churches, hospitals.
(17:38):
It's really broad.
Charities of, you know, but legitimate charities.
OK.
It does not necessarily get to go directly
to.
All right.
There's this poor person, this homeless person on
the street.
I really want to help them out.
Right.
We can't do that through a donor advised
on a foundation might be able to do
that.
But a donor advised fund that goes to
(17:59):
charitable organizations that they might deal with that
person on the street.
But indirectly, I think most families understand that
you can't give it to a person, but
it comes up.
There is a difference between a nonprofit entity
and a charitable entity as determined by the
IRS.
So sometimes someone may see a nonprofit and
(18:19):
think that they can receive charitable donations that
are deductible or qualifying.
And sometimes they're not.
Well, you mentioned 501.
There's lots of different 501 type classifications and
some may be eligible and some may not
be eligible.
Some are related to education, you know, for
and so forth.
So it's go go in with your eyes
(18:42):
wide open that perhaps you could run into
a charity or if there is a specific
charity that you intend on using, bet that
out before you enter.
Yeah, advice fund.
And keep in mind, there's a couple of
things that we might want to think about
when selecting a donor advised fund.
One is, does the donor advised fund have
some of these rules about donation?
(19:03):
Right.
We came across one recently that was going
to require that if you didn't make a
donation within three years, they were going to
start making donations for you.
If and if if you had made a
donation, they'd use whoever you had most recently
donated to.
If not, they would make their own assessment,
(19:25):
you know.
So there's rules in some of them.
Yeah.
So that's one kind of thing.
Oh, is there a requirement around that?
Two is maybe when it comes to these
donations, you know.
It's advised, you're saying I'd like to go
to this and it is at the discretion
(19:45):
of the trustees, essentially of the of the
foundation to decide is that something they're going
to they're willing and able to do.
So, you know, keep that in mind.
Another thing to be tuned into is can
I move the fund?
If I'm not happy with this fund, this
foundation, can I move it to that fund
(20:08):
foundation?
You know, so there are times you can
do that.
And it's essentially just another charitable gift in
effect from A to B.
So like a transfer.
So these are things to be tuned into.
Russ, maybe you did a little just preliminary
review of some of the differences and cost
(20:28):
and so forth.
What are some of the other variables that
might come to your mind?
Well, I think, you know, when people are
talking about these donor advised funds, they may
sound, you know, fancy and, you know, the
high minimums and that kind of thing.
Yeah.
For a lot of the donor advised funds,
like through Schwab has a donor advised fund,
Fidelity you mentioned, I think Vanguard has one.
(20:51):
And these are the minimums to start a
donor advised fund are really quite low for
the most part.
To have professional management within the fund, it's
a little bit higher.
It can be a little bit higher, but
just it's pretty accessible to most to most
investors out there.
And just the idea to have even people
(21:11):
who are donating on a monthly basis, I
know a lot of people who do, they
have like a basically part of their budget
is their donation month to month.
Yeah.
And they can, you know, front load a
donor advised fund at the beginning of the
year, have that money grow tax free in
a relatively safe invested vehicle if they choose
to do so and choose which charities they
want to distribute to throughout the year.
(21:33):
I think that's a really great option for
those people who have charitable inclinations and want
to do that throughout the year.
But yeah, as to, you know, some of
the fees, I don't know if we want
to.
Yeah, why not?
I mean, just this is preliminary research.
These things can change.
We just were looking at it recently, a
few few different firms.
(21:54):
And keep in mind, there's there's countless community
foundations and other options.
We're just talking about some of the ones
that are in our orbit that we've looked
at recently that relate more to the kind
of circumstances we are involved with, where we
stay involved in the management of the investments
as well.
(22:14):
But yeah, what were you going to say?
So it looks like the typical expense rate
is about 60 basis points on the first
500 thousand or so.
So that's a reasonable pretty big range.
Yeah, you will see it will be 0
.6 percent, 60 basis points, 0.6 percent
rate of charge.
(22:35):
And then if you have an investment manager
involved, they choose to probably charge something on
top of that.
Right, right.
So that's just the administrative fee for the
donor advised fund that's handling the contributions.
Yeah, yeah.
So it scales down from there quite considerably.
But I mean, from what I was seeing,
I thought it was pretty competitive.
You know, 6.6 is quite reasonable compared
(22:59):
to even some mutual funds that are out
there.
So yeah, there's some administrative costs.
And I think, you know, again, how where
you do this can vary and the scale
of the amount you're involved with can vary
the some of these costs as well.
And, you know, I mentioned like some will
(23:21):
allow you to the community foundation will allow
you to have a scholarship.
Well, most of the ones that a charitable
fund that is through a brokerage platform, they're
not going to do that.
Right.
It's a different kind of scenario.
So, you know, you have to identify what
are you trying to accomplish?
We will help define where it might make
sense to work.
(23:42):
One other detail I want to mention.
So you're mentioning that the contribution is deductible.
And so it's deductible in the year that
you make the donation to the donor advised
fund.
So let's say as an example, let's say
you make $100,000 every year.
So if you do a cash donation to
the donor advised fund, 60 percent of your
(24:05):
adjusted gross income is is deductible.
So you can donate if you're making $100
,000, let's say that's your adjusted gross income.
You can make a donation of $60,000
when you're in that could all be deducted
off your gross income.
So I count as a charitable contribution that
you get to take a deduction for.
Right.
And if you're doing the same with appreciated
(24:27):
stock, it's 30 percent.
So and that's the market value, the present
market value of the contribution.
So so there are differences and this changes
from there have been times this was different
amounts of different years.
I remember just a few years ago, there
were some differences in these numbers.
I think it was at the start of
(24:48):
the Secure Act or something along those lines.
I forget which which which law came into
effect that caused that.
But keep that in mind, you know, that
what it has been and what it will
what it what it is currently may not
always be the same.
But it's a good point.
So, you know, that there's some incentive to
use cash in that scenario.
(25:08):
On the other hand, there are some virtue
to using stock and that we get to
avoid the capital gain.
It doesn't have to be all or one.
Can I.
And I think, you know, there's other types
of assets.
Sometimes people have real estate.
Sometimes people have art.
People are going to be all kinds of
interesting things that might cause people to consider
(25:30):
use of a donor advised fund.
All right.
So some costs ongoing, but, you know, the
other thing is, like, is it is a
perpetual or can someone doesn't want someone use
this for a period of time and then
be done with it?
Well, it could be either.
Right.
Yeah, it could be something that's circumstantial and
(25:51):
then you're done or it could be something
that you're saying, hey, I want to have
this live on for many years for legacy
purposes.
Right.
There's one other reason that some families decide
to do it or individuals.
This can be done confidentiality confidentially, meaning, you
know, sometimes people want to be philanthropic, but
they don't really want for whatever reason.
(26:13):
They don't want their name associated with the
contribution that they give.
Yeah.
Either they don't want a bunch of people
asking for more or or they they don't
necessarily want the recognition.
Yeah.
Well, there's there's an endless list of reasons
why people want to keep things private.
And you can do that through a donor
advised fund.
You can make the donation to the charity
(26:33):
without disclosing your name.
Some and there's different rules for foundations, so
they have obligations that they have to disclose
certain amounts of donations.
So if you wanted to be strictly confidential
and private, a donor advised fund might be
a good choice.
So, you know, let's just mention a couple
(26:55):
of things as we wind down.
You know, you're not going to be an
expert from a quick podcast, but definitely keep
this on your radar, something you might want
to learn more about, maybe take take advantage
of, make use of doesn't require you don't
have to be a millionaire, you know, kind
of big numbers to think about something along
these lines.
But it's you know, it is something you
(27:17):
you probably want to have certainly discretionary money
you're willing to donate to charitable intentions.
But there's tax benefits, there's charity benefits, there's
control.
There's a whole bunch of considerations and legacies
we're just talking about.
If you want to learn more, there's a
nice we've got a nice little brochure.
We got it on the screen for those
watching on video.
(27:39):
And you can check this out if you'd
like to get a copy of this.
Reach out to us.
We're giving it away.
It's just a little bit of information about
donor advised funds.
Give you a little bit of the basics.
But I think it's a good good thing
to consider.
Reach out to us.
Probably easiest ways to connect with us through
(27:59):
our email address.
You can just connect to us with an
email saying amr-info at wealthenhancement.com.
Send us that.
Give us a call 866-771-8901.
Just let us know you're interested in the
(28:20):
donor advised fund brochure.
We'll send it to you by email.
Or if you prefer, let us know if
you want it in print.
We'll we'll print it out for you and
send it to you that way.
But just let us know what you're interested
in and think you'll benefit from it.
Anything to add, guys, as we wrap up?
No.
All right.
Well, that's donor advised funds.
(28:41):
Hope you take advantage of it if you
need help.
Look, as I mentioned, we certainly offer these
as something we help with our clients who
do want to have, you know, a donor
advised fund, but may want it to continue
to grow over time.
We can be a resource to you or
certainly point you in the right direction if
it's something you want a little guidance on.
(29:02):
So thanks for listening.
Until next time, keep striving for something more.
Thank you for listening to something more with
Chris Boyd.
Call us for help, whether it's for financial
planning or portfolio management, insurance concerns or those
quality of life issues that make the money
matters matter.
Whatever's on your mind.
Visit us at something more with Chris Boyd
(29:23):
dot com or call us toll free at
eight six six seven seven one eight nine
zero one.
Or send us your questions to A.M
.R. dash info at Wealth Enhancement dot com.
You're listening to something more with Chris Boyd.
Financial talk show.
Wealth Enhancement Advisory Services and Jay Christopher Boyd
provide investment advice on an individual basis to
(29:44):
clients only.
Proper advice depends on a complete analysis of
all facts and circumstances.
The information given on this program is general
financial comments and cannot be relied upon as
pertaining to your specific situation.
Wealth Enhancement Group cannot guarantee that using the
information from this show will generate profits or
ensure freedom from loss.
Listeners should consult their own financial advisors or
conduct their own due diligence before making any
financial decisions.
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