Ross Polking Thumbnail Photo

As 2015 starts to wind down, many investors are thinking about how to positively impact causes and organizations about which they are passionate. A further benefit of this endeavor is the opportunity to lessen one’s annual tax burden. A donor advised fund (DAF) is a fantastic tool for gifting and tax mitigation that is worth considering. DAFs are philanthropic vehicles operated by public charities which are relatively uncomplicated, widely available, and cost-effective for charitable pursuits. They are simpler to set up and less capital-intensive than a private foundation. They also allow for greater control and personal input than direct donations.

The premise and process is simple:

1) Choose an organization that offers a DAF, and open an account.
2) Deposit cash or transfer securities into the account, surrendering your ownership of the assets.
3) Provide direction to the DAF on how the account is invested, when and to whom dollars are distributed.

Here are a few of the benefits and inner workings of DAFs:

• Avoid capital gains taxes on highly appreciated securities. Making donations using appreciated securities is one of the most tax-efficient ways of giving. Donors not only get an immediate tax deduction for the fair market value, they also avoid paying any capital gains tax when those shares are liquidated inside the DAF. Many investors have large unrealized gains built up in after-tax portfolios with the market rise over the past few years.
• Reduce future tax burden on heirs. Listing a DAF as a beneficiary of an investment account removes those assets from one’s estate at the time of death without subjecting them to gift tax consideration. Consider this so long as heirs are taken care of with other assets.
• Mitigate large expected tax bills. A deduction for a donation to a DAF is taken in the same year as contribution to the fund, rather than the year of the distribution from the fund to a charitable organization. This allows for the flexibility to minimize taxes in years when you expect a large tax bill while still preserving the ability to make a gift at the right time. Additionally, gift amounts that exceed Adjusted Gross Income limits (50% for cash, 30% for property) can carry forward for up to five years.
• Deductions and capital gains mitigation are more valuable. Because of the increase in marginal income and capital gains taxes, limiting their effect is now of even greater benefit. The highest marginal tax rate is near 40%, while the top capital gains tax rate is 20%. Both have increased in the past year and offer even more incentive to the giver to mitigate taxes with their charitable gifts.

Giving to charity can be done in many ways. Just be sure you are maximizing every dollar with efficient giving techniques, benefitting the causes you are passionate about as well as your own pocketbook. Stay diversified.

PLEASE NOTE LIMITATIONS: Please see Important Disclosure Information and the limitations of any ranking/recognitions, at A copy of our current written disclosure statement as set forth on Part 2A of Form ADV is available at