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Donor Advised Funds

Technical topics regarding tax preparation.
#1
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I have read on how these work and I am not seeing any downside....there was only a few mentions on this topic in the TPT history and they were more than a few years old. Just want to be sure none of the hoards of new regulations have changed anything.

Client has quite a bit of unrealized capital gains on mutual funds he' had for decades. He realizes the DAF's have fees and they are not deductible, but it will allow anonymous giving vs giving the appreciated stock directly to a specific charity.

Any special reporting requirements?? He is looking at Vanguard for this so I would assume they would provide some sort of statement to him acknowledging the contribution to the DAF.

Any pitfalls I need to watch for??

Thanks in advance!
 

#2
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To avoid some fees or just change the nature of how the "management" of the fund plays out post-donation, you might have your client look into establishing a DAF with a local community foundation. I have a handful of clients who have done this. It has the potential for a very rewarding relationship with the foundation. For the very charitably minded, this can be much more fulfilling that simply an account from which money is distributed each year.
~Captcook
 

#3
Joan TB  
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Just make sure your local community foundation (DAF) can accept the mutual funds directly. You certainly don't want him to sell the mutual funds first. I am not sure about one that my client uses because he only gives cash anyway.

I have another client who has a DAF with Fidelity and he is pretty happy with it. Yes, they provide the confirmation documents you need. However, I don't think the ultimate donations he made to the charities were anonymous, but that might have been his choice. So if that is particularly important, make sure if/how that will happen.
 

#4
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Thank you Capt and Joan!........I am going to let him deal with the "who" ......he has mentioned a community foundation so I think is considering that and Vanguard...which is who holds the mutual funds currently.
 

#5
Jake  
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Vanguard would seem to be a seamless (no pun intended) option. Avoid capital gains tax and get a Sch A deduction based on value on date of contribution. Unfortunately the current high threshold for itemizing might reduce that benefit. No time constraints on actual distribution from a donor advised fund to charities. I have let my Donor Advised Fund at Schwab mostly grow using IRA QCD'S for most of my contributions. The community foundation's fees might be a lot more.
 

#6
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Jake wrote:Vanguard would seem to be a seamless (no pun intended) option. Avoid capital gains tax and get a Sch A deduction based on value on date of contribution. Unfortunately the current high threshold for itemizing might reduce that benefit. No time constraints on actual distribution from a donor advised fund to charities. I have let my Donor Advised Fund at Schwab mostly grow using IRA QCD'S for most of my contributions. The community foundation's fees might be a lot more.


Thanks Jake. I think he is going to go with Vanguard due to the "seamless-ness".....LOL We have discussed the itemizing threshold but he is an engineer, so has his own analytics that don't always make the most tax sense. I feed him info and we discuss.

I will pass along your feedback. Thanks!
 

#7
ICOUNT  
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I have my charitable donor fund with Vanguard. One thing about Vanguard -they do a very much due diligence test when making a grant. It must be on the IRS listing as a 503(c) organization. Some brokerage (Ed Jones) give the customer a checking account-where the customer writes the checks himself. What I wonder is how the IRS knows that the IRA distribution goes to a qualified organization---the preparer indicates this when imputing the 1099R. If the brokerage firm doesn't write the check (and approve) it seems there could be a lot of abuse. Vanguard does allow to choose from various funds.
 

#8
lucyko  
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First of all this is not an IRA distribution going to a charitable organization but a donor advisor grant going to a charitable organization.

In terms of IRS knowing it's going to a charitable organization, this is very similar to a charitable contribution reported on Schedule A where there is no initial matching to any tax document (1099 etc) .It would be confirmed /verified upon an IRS audit or correspondence letter.

As mentioned, the major brokerage firms, with the exception of AG Edwards, do an incredible job of confirming that the grant is going to a charitable organization as part of their internal process . I remember several years ago Fidelity Investments refused to process a grant for me because the spelling of the charity was different than IRS master file .
 


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