The world of nonprofit fundraising is filled with assumptions and misconceptions, many of which are held and advanced by professionals within its own ranks. One such example is that foundations are made, maintained and funded by the uber-wealthy, leaving the rest of the population with only traditional gifting vehicles such as multi-year pledges, gifts of cash and stock transfers.
This narrative is obviously a generalization. As proof, consider the recent offering by Schwab Charitable that allows prospective donors to open a Donor Advised Fund with a minimal contribution of $5,000. While this vehicle may allow John Doe to feel like John Rockefeller, what should you know about it and how can it help your organization?
Tax advantages of a Donor Advised Fund
When a donor makes a gift directly to a donor advised fund, that same donor receives an immediate tax deduction, regardless of when (or if) that donation makes it to your nonprofit. Should prospects be looking to reduce their tax liabilities but aren’t immediately comfortable with supporting your organization, the gift can be made to the donor advised fund now and distributed later.
Even better, if a donor is looking to reduce, or eliminate, capital gains taxes following the sale of a publicly traded security, the direct donation of said security to the donor advised fund is a gift of full market value (assuming the security has been held for at least one year) with neither the donor nor the DAF having to pay any of the taxes related to its appreciation.
How do DAF contributions reach your organization?
A prospective nonprofit recipient has no direct control over the donor advised fund or its distributions. The donor ultimately advises the DAF manager as to when distributions and gifts are made and to whom they are gifted. This highlights the need for ongoing cultivation and communication with your entire community of supporters, not just those who have the greatest immediate capacity.
An advantage of donor advised funds to a nonprofit is that your organization is positioned to receive 100 percent of an appreciated gift, as opposed to only 70 to 80 percent of the value if otherwise liquidated and subject to capital gains tax.
With Schwab seeing a 30 percent increase in 2019 contributions (to date) compared to fiscal year 2018, donor advised funds are more than just a fad. Given their accessibility and growth, it is critical that inclusion and education of donor advised funds are part of your overall planned giving program.
If you have questions on improving your planned giving program, please contact me.
(Note: This is not tax or legal advice. With the tax laws and regulations constantly changing, nonprofits should always encourage donors to consult with their attorneys and/or tax professionals to determine how donor advised funds will work for them.)
