Randall V. Brewster John G. Brewster
Financial Advisor Senior Vice President-Investments
Portfolio Manager, Senior Portfolio Manager,
Portfolio Management Program Portfolio Management Program
UBS Financial Services Inc.
This article has been written and provided by UBS Financial Services Inc. for use by its Financial Advisors.
If you are, or are planning to become, one of the millions of Americans who will contribute to charity this year, there are several ways to ensure that you improve your tax liability through giving. One of the more creative ways of giving is through a donor-advised fund (DAF), a separately-identified fund or account that is maintained and operated by a section 501(c)(3) charitable organization.
Donor-advised funds are becoming an increasingly attractive option for individuals, families and organizations looking for alternatives to direct giving or private foundations. They are usually offered by foundations, mutual fund groups, other financial firms and universities, who often partner with a charity on the offering.
The benefits donors receive from using donor-advised funds include the ability to donate a wide variety of assets, an immediate tax deduction, flexible grantmaking and the opportunity to create a legacy. The charitable assets can also be passed on to future generations to oversee and/or can be given directly to charitable organizations
Since the contributions are being made to a public charity, the donor receives an immediate tax deduction, including a deduction for a cash donation of up to 50% of the donor's adjusted gross income (AGI), or a deduction for securities and other appreciated assets of up to 30% of his or her AGI.
Leave a legacy with a private foundation
Private foundations offer a more traditional approach to giving. With a private foundation, donors establish a private grantmaking giving vehicle that is formed as a trust or corporation and generally receives most of its funding from one source, such as a family.
There are several tax advantages to having a private foundation, including the fact that no capital gain is realized when appreciated property is donated to a foundation. Donors may also claim a charitable deduction for the full market value of appreciated stock held in publicly traded companies.
There are also several things to consider regarding when selecting a charitable vehicle. For example, with donor-advised funds, you lose complete control over the workings of the fund. And while the donor may provide suggestions about the distributions the institution makes from the fund, the recommendations are only advisory. However, most suggestions are followed by the administrating charity, but they are not obligated to do so.
In contrast, donors in private foundations can create their own board, pick investments from across the financial industry and give equally to foreign and domestic charities.
When comparing the two structures, it is important to realize that the DAF and a private foundation can also complement each other. For example, the DAF and a private foundation can work together to fund anonymous grants, facilitate donations of special assets, and simplify international grantmaking and operational administration.
Need more information to help you decide on the right vehicle to use to conduct your charitable giving? Please contact a financial advisor, who may be able to provide you with more information on how a donor-advised fund may assist you in your strategic philanthropy.
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