Winston Churchill wisely stated, “We make a living by what we get, but we make a life by what we give.” Giving without expecting anything in return is the essence of generosity. It may be motivated by gratitude, a desire to help others, to share our values with the next generation or for any number of other reasons.
Generosity can be simple or complex, and giving can take many forms such as sharing of our time, skills, possessions, business interests and property, as well as money. You can give food to a local food pantry, teach a class at your church, buy something at a charity auction event, and give cash or write a check. These are simple, but what if you want to structure your generosity in a way that allows for greater financial impact?
Financial planning discussions focusing on fulfilling hopes and dreams can be the most satisfying. Creating a strategy to accomplish those dreams allows you to reach you objectives. So, why relegate charitable intent to the estate planning discussion? Giving while you live allows you to be part of the charitable experience and gives you an opportunity to set an example for younger generations of your family.
Consider a Donor Advised Fund (DAF). A DAF is administered by a sponsoring organization, like a community foundation or custodian, such as Charles Schwab. If you donate funds through a DAF, you can recommend where assets are distributed or invested. You can give to an existing DAF or easily and inexpensively establish your own fund, and use it for giving and tracking all or most of your giving in one place.
DAFs benefit those who own appreciated securities (stocks, bonds, mutual funds, ETFs, etc.) or securities for which cost basis (what you actually paid for them) is unknown (such as inherited stocks). With such assets, you’ll owe capital gains tax of 15–20% or more on the difference between your cost and the sale price. A better alternative may be to gift shares of these holdings to a DAF, and your gift—for tax purposes—is to the fund. The fund, a non-profit entity, receives and liquidates the shares, then sends cash to the charity of your choice. Your charity receives your full intended gift. You get the full charitable deduction with no capital gains tax to pay.
DAFs have other advantages, too. They have some of the benefits of a foundation, but DAFs cost less, require less administration, and are confidential (a foundation’s information is publicly available). You can even gift shares of your own business or real estate to your DAF, providing you a charitable deduction of up to 30% of your adjusted gross income and the ability as donor to direct where those dollars are gifted. A final point not to be overlooked: a DAF can be named as a beneficiary in your will or on your retirement account, making it a great tool for conveying your charitable values to future generations, to carry generosity forward.
Churchill was right. Those who give generously don’t just make a living; they make a life. If you have the desire to give, you’ll have a hand in making others’ lives as well. Explore the possibilities open to you.
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