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Anyone Use Donor Advised Funds (DAF)?
Old 09-16-2013, 06:16 PM   #1
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Anyone Use Donor Advised Funds (DAF)?

I have a situation in 2013 where my income is going to be rather large as a result of my last round of stock options vesting. The options vest as regular income so i'm headed into the top bracket. I have been looking into Donor Advised Funds to park a wad of appreciated stocks and etf's in order to lower my AGI. Plan will then be to disburse those contributions to charities of my choice (to the extent the DAF allows)over the next twenty years or so.

Can't imagine that I'll ever be in the 39.6% bracket so it seems like a good way to get the biggest bang for my charitable buck by lowering AGI AND avoiding some cap gains taxes in the 23% range.

Anyone use DAF's as part of their tax planning?
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Old 09-16-2013, 06:29 PM   #2
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Yes. I've had a DAF for five years now.
Your thinking is spot on.
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Old 09-16-2013, 06:33 PM   #3
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I have had a DAF for about 5 years as well. So far, I haven't put any money into it, but I expect that it will be very helpful when I face RMDs.
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Old 09-16-2013, 06:39 PM   #4
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Originally Posted by RockyMtn View Post

Anyone use DAF's as part of their tax planning?
Yep. I opened mine with Fidelity in 2009. I contribute significantly when our income is high (2009,2010,2012,2013) and I don't contribute when our income is lower (2011).
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Old 09-16-2013, 06:46 PM   #5
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Big thumbs up to DAF's for being able to time your charitable giving for tax purposes apart from the timing of your actual giving to the ultimate charitable beneficiary.

If you need some income form it, you may want to look into a Charitable Remainder Trust also. You could sell the stock and pay no capital gains. Reinvest it into a diversified portfolio and then draw income for a set term or for life leaving the Remainder (min of 10%) to your DAF or any other charity at the end of the Trust term.
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Old 09-16-2013, 09:50 PM   #6
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I opened one w/ Vanguard Charitable in 2006/2007 when I had 2 very uncommonly high tax brackets those years, and plunked some money into the DAF.

Vanguard has greatly increased the options available (they used to have just 3 investment options when I first started - now they have something like 8 or 9, including 2 or 3 international).

With Vanguard, their only 'requirement' is that they ask that you make at least one 'grant request' once every 7 years. Overall, the entire Vanguard Charitable organization must give away a certain minimum %, but they are well over that with everyone's donation patterns. I've been slowly making grants over the years, and managed to make a great move by shifting 1/3 of the account from cash to equities in March 2009! Definitely has helped grow the account for the benefit of my fellow neighbors.

There are other DAF providers, but haven't researched them lately (Schwab, T Rowe Price, I think even Royce funds offers a DAF). At the time, Vanguard Charitable offered the lowest cost combinations (surprise, surprise ), but they were all fairly close. VC is a completely separate organization from Vanguard, but they offer Vanguard fund investment choices.

They do also accept gifts of stock. Just check their deadlines - might be December 1 for stock contributions.
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Old 09-16-2013, 10:09 PM   #7
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here's an older thread Donor-advised funds
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Old 09-16-2013, 10:12 PM   #8
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I've been using the Vanguard DAF for about three years and I contribute in times when the stock market is good and my income is good. (2010 and 2012 so far.) I've started making regular contributions to a charity I like, and I've socked about six years of future contributions in the DAF, about 1/3 in cash, 1/3 in medium growth and 1/3 in aggressive growth (or whatever they call it.) The only problem is they charge about a 1%/year management fee so I think you're best to give away the money relatively quickly or else the fee eats away at your principle.
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Old 09-18-2013, 06:39 PM   #9
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Established a DAF with my local community foundation back in 2005, had a windfall.

It works well.
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Old 09-19-2013, 11:19 AM   #10
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Originally Posted by Hamachi View Post
I've been using the Vanguard DAF for about three years and I contribute in times when the stock market is good and my income is good. (2010 and 2012 so far.) I've started making regular contributions to a charity I like, and I've socked about six years of future contributions in the DAF, about 1/3 in cash, 1/3 in medium growth and 1/3 in aggressive growth (or whatever they call it.) The only problem is they charge about a 1%/year management fee so I think you're best to give away the money relatively quickly or else the fee eats away at your principle.
I have one of these accounts and just went off to check to see if I had misunderstood the fee structure. For accounts under $500k there is an admin fee of 0.6% plus the investment fee which is based on the asset allocation you choose for your charitable fund. These investment fees run from 0.05 for Total Stock Market to 0.18 for their Emerging Market fund, there are 13 funds to choose from all told. This gives an All-in fee, in effect an expense ratio, of 0.65 to 0.78, not 1%.

Source: https://www.vanguardcharitable.org/i...s_and_expenses

Granted this is more than Vanguard's regular funds' expense ratios - but lower than many other charitable endowment expense fees.
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Old 09-19-2013, 03:59 PM   #11
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I did this twice so far - my last year of work and the year I exercised my remaining stock options. It is a good way to arb tax rates. Will probably continue when we hit 70 and RMDs start.
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Old 09-19-2013, 06:51 PM   #12
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We have one so that we can bunch deductions into every other tax year and take the standard deduction in the intervening years. It saves us more than a thousand dollars in taxes every year.

We use Fidelity because I am told by my spouse that the minimum grant to a charity is lower than with Vanguard.

Another advantage of a DAF is that they do most of the bookkeeping for you. Instead of several checks to one's many charities, one can just transfer stocks or a single check to the DAF and dribble out the money to the many charities. On one's tax return then one only has to put a single big charitable contribution instead of all those little ones.
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