Donor-Advised Fund

[JoeWras]

As our religious support is a good part of the total I first need to make sure that the entity is set up as a 501(c)(3).

You may also call up your charity and ask if they have had successful donations from DAFs such as Fidelity or Vanguard before. I did that because it was a bit nerve wracking. I figure that anything "religious" these days is suspect, so I thought it would be harder than "Save The Varmints" for example. Not so. They go by the 501(c)(3) pretty much.

From VG Charitable's report, here's what people are advising, overall:

 

[JoeWras]

We set up a Vanguard DAF yesterday. This morning the assets were gone from my regular Vanguard account. However they were not posted to Vanguard Charitable. There was an (i) information button at VC indicating assets were in the process of being transferred.

THAT is the normal process.

 

[audreyh1]

That aspect of the tax break is there whether you itemize or not, if your choices are to sell then donate vs. donate appreciated asset. You would have to report the sale whether you itemize or not and that would add taxable income, so donating the appreciated asset is always a tax advantage. The itemizing lets you deduct the donation itself, regardless of whether it's cash or an appreciated asset.

I thought that was clear from my post as I was comparing donating cash (after selling assets) versus donating the appreciated securities directly.

 

[RunningBum]

I thought that was clear from my post as I was comparing donating cash (after selling assets) versus donating the appreciated securities directly.

Maybe you meant in the other case you'd only be contributing the after-tax proceeds of the equity sale. I wanted it to be clear that not having to pay tax on the appreciated portion of the securities that you donate has nothing to do with itemizing.

 

[RunningBum]

We set up a Vanguard DAF yesterday. This morning the assets were gone from my regular Vanguard account. However they were not posted to Vanguard Charitable. There was an (i) information button at VC indicating assets were in the process of being transferred.

Thanks. That's exactly what I expected. It'd make sense for it to be gone from my regular account but not yet in the charitable account, but makes no sense for it to be received in the charitable account but not even pending in the regular account. I've checked that the funds didn't come from anywhere else, including my tIRA or Roth or another holding.

Actually what I expected was that the transfer didn't go through at all. I'm betting I hit an error window where the transaction was processed on one end and not the other because I didn't take it to completion.

I'll give it one day and contact VG tomorrow if it's not fixed overnight.

 

[gauss]

Just be aware that the charity has to be 501(c)(3) for a DAF grant, at least that's true of Fidelity Charitable. A lot of churches haven't registered for that.

I believe that I have been able to make a contribution to a local church via Fidelity Charitable even if the specific church did not have it's own TIN (which is a separate issue than a 501(c)3 designation)

They were able to process the deduction, I believe, under blanket TINs setup higher in the church hierarchy. This was a pleasant surprise.

I am referring to the well-established (ie. several millenniums), large, church hierarchy, very popular in the Midwest and East Coast (ie Boston) with their global HQ withing the boundaries of the country of Italy.http://www.early-retirement.org/sk/forums/images/smilies/coolsmiley.gif

If you are referring to a standalone, independent church, on the other hand, then I could foresee problems with grants via Fidelity Charitable.

-gauss

 

[jonat]

Yes - as long as there is a TIN associated with some 501(c)(3) entity, you should be fine.

 

[Gill]

Yesterday I directed a transfer from my Vanguard account to my DAF with Vanguard. This morning, less than one day later, the fund was out of my account and already invested in the DAF. Amazing! Previously when I had my DAF at Fidelity it would take almost two weeks. They seem to really have the routine established. Never had to sign anything or speak to a person. Couldn’t be easier.
Gill

 

[Scuba]

So this is a VERY basic question, but why set up a DAF vs just donate as you wish whenever it makes sense? The latter option preserves flexibility and the option of donating cash or appreciated securities is available. I'm obviously missing the point of why setting up an irrevocable fund is better than just donating cash or appreciated securities directly to charities each year.

 

[audreyh1]

So this is a VERY basic question, but why set up a DAF vs just donate as you wish whenever it makes sense? The latter option preserves flexibility and the option of donating cash or appreciated securities is available. I'm obviously missing the point of why setting up an irrevocable fund is better than just donating cash or appreciated securities directly to charities each year.

• It makes it possible to bunch charitable deductions yet still gift on a regular schedule.
• It lets you donate completely anonymously.
• It makes it far easier to donate appreciated securities.
• It vastly simplifies paperwork, tracking and reporting.

 

[imokurok]

I set up a DAF at Schwab last year with cash anticipating GOP tax plan would double standard deduction and eliminate most of tax benefit of charitable donations we do every year. Found Schwab folks made it pretty easy. All our charities were recognized. Last year’s cash donation to set up DAF helped with taxes. This year donated appreciated stock for first time and not only will get tax deduction for valued of appreciated stock, will also avoid capital gains hit that would have otherwise happened. (Company/stock bought out.) I can make charitable donations at pace I want. So far, seems to work fine.

 

[RunningBum]

OK, my Vanguard investor account is now correct with the correct number of shares transferred out. Very odd that it happened in that order. But at least both sides are right now.

 

[JoeWras]

• It makes it possible to bunch charitable deductions yet still gift on a regular schedule.
• It lets you donate completely anonymously.
• It makes it far easier to donate appreciated securities.
• It vastly simplifies paperwork, tracking and reporting.

+1000

And "from the other side," as a treasurer of a small 501(c)(3), I saw that DAF donations were great compared to getting a stock transfer request.

DAFs also allow "complex asset" donations, which many charities have no prayer of handling. Someone above mentioned Bitcoin at FidoChar. For VGC, that would be a complex asset transaction.

Basically, the DAF can handle all the BS of a life insurance donation, restricted stock, personal property (art auction!), etc. The charity gets a check.

Also, the audrey's first point about "regular schedule" is important. It is much better for a charity to get donations over a regular schedule than in one huge lump. Charitable boards can be terrible stewards of one time gift. I think there was a story on a thread here recently about some university getting a gift for the library that somehow ended up with the football team. Much like the rest of America, boards can't seem to learn how to LBYM. Spreading it out helps avoid that temptation of blowing the load. Just my opinion here, having seen from the inside how boards can operate ...

 

[Scuba]

+1000

And "from the other side," as a treasurer of a small 501(c)(3), I saw that DAF donations were great compared to getting a stock transfer request.

DAFs also allow "complex asset" donations, which many charities have no prayer of handling. Someone above mentioned Bitcoin at FidoChar. For VGC, that would be a complex asset transaction.

Basically, the DAF can handle all the BS of a life insurance donation, restricted stock, personal property (art auction!), etc. The charity gets a check.

Also, the audrey's first point about "regular schedule" is important. It is much better for a charity to get donations over a regular schedule than in one huge lump. Charitable boards can be terrible stewards of one time gift. I think there was a story on a thread here recently about some university getting a gift for the library that somehow ended up with the football team. Much like the rest of America, boards can't seem to learn how to LBYM. Spreading it out helps avoid that temptation of blowing the load. Just my opinion here, having seen from the inside how boards can operate ...

Thanks for the perspective and thanks to Audrey for the explanation. I'm still not sure about this for us as I like keeping the control and flexibility each year rather than making a large irrevocable donation. However that may change over the years.

 

[audreyh1]

Over the last two years I have liquidated a remaining legacy position of company stock from when I retired eons ago. As part of this process, I made substantial donations of appreciated stock to our Fidelity DAF. From our annual budget, this ends up covering planned budgeted donations for the next 8 years or so, so it frees up that part of our budget.

We may still donate more for other reasons. But it does mean we can take advantage of large lump sum donations from a tax deduction perspective, and still gift the funds over the next many years as if it were coming out of our budget annually.

 

[RunningBum]

Thanks for the perspective and thanks to Audrey for the explanation. I'm still not sure about this for us as I like keeping the control and flexibility each year rather than making a large irrevocable donation. However that may change over the years.

Certainly understandable. For my situation, "irrevocable" kind of works the opposite. I want to make large donations this year due to my current tax situation and changing laws, but don't want to commit years of donations to my current charities. Not only might they not use them well if given as a 4 or 10 year or however big lump sum, but I may have reasons to not want to continue donating to them in the future. Too bad, the money is gone to them. With a DAF, it is true that the funds are irrevocably committed to charities (in general), but I retain full flexibility as to which ones they go to at any time in the future.

 

[JoeWras]

And in a good year like this, the DAF has appreciated too (I have 50% in growth).

A request came up recently from a charity. The DAF has done well, there's excess. Sure, why not, here's a donation. Easy peasey. A couple of mouse clicks and it is done.

 

[audreyh1]

For my situation, "irrevocable" kind of works the opposite. I want to make large donations this year due to my current tax situation and changing laws, but don't want to commit years of donations to my current charities. Not only might they not use them well if given as a 4 or 10 year or however big lump sum, but I may have reasons to not want to continue donating to them in the future. Too bad, the money is gone to them. With a DAF, it is true that the funds are irrevocably committed to charities, but I retain full flexibility as to which ones they go to at any time in the future.

Exactly!

 

[Scuba]

Yes, I understand this. If we get into a situation where we want to make a particularly large donation in one year, I can see how DAF's would help. We are early in ER and not ready to make a large commitment that is irrevocable. Maybe we'll feel differently if our portfolio continues to do well for the next several years,

 

[JoeWras]

Yes, I understand this. If we get into a situation where we want to make a particularly large donation in one year, I can see how DAF's would help. We are early in ER and not ready to make a large commitment that is irrevocable. Maybe we'll feel differently if our portfolio continues to do well for the next several years,

Yes. Not for everyone. VGC is a large commitment at an initial $25k. FidoChar is much smaller, but still a significant commitment. Totally understand.

 

[MBAustin]

After thinking about it for several years, finally opened our DAF with Vanguard Charitable. Be forewarned that transfers in may require a medallion signature guarantee, which is very difficult to get these days. We ended up moving the appreciated mutual fund shares we wanted to donate into a Vanguard brokerage account using voice verification in lieu of a medallion guarantee, and now we're making the DAF contribution from there electronically. Unfortunately, we found out yesterday that it takes (much) longer when you are moving non-Vanguard mutual funds - it's been a week since we requested the transfer and it's still in process. So don't leave it to the last minute if you want the deduction this year.

 

[Nords]

Yes, I understand this. If we get into a situation where we want to make a particularly large donation in one year, I can see how DAF's would help. We are early in ER and not ready to make a large commitment that is irrevocable. Maybe we'll feel differently if our portfolio continues to do well for the next several years,

You might only care about the DAF for the reasons Audrey pointed out earlier, and my favorite reason is that we're totally off the fundraising mass-mailing lists. We only get 2-3 pieces of mail (total) per week now.

You could also send your next set of charitable donations through a DAF to see how you like the process. Set up the DAF and give it the minimum amount of money that you'd like to donate to a charity. When the funds are on deposit then the next day you could send them to your chosen charities and knock the account value back down to zero.

We use our DAF for multi-year financial planning, but right now it has a zero balance. (We haven't put more into it yet.) Every six months when I get a royalty check I transfer it into the DAF and then immediately transfer it out to the charity. The DAF effectively sits empty for 360 days/year, or until we make our next large lump-sum donation.

 

[braumeister]

The DAF effectively sits empty for 360 days/year, or until we make our next large lump-sum donation.

If that's what you want, then it's good.

But I love seeing the available funds grow in the DAF. Sure, it means FIDO makes a little from their fee, but the balance grows a lot more than that. So I'm able to make more generous gifts than I could otherwise. That works better for me.

 

[RunningBum]

No fee if the balance is 0? For Fido I see an annual fee charge of the greater of 0.6% or (edit $100. Assume you probably wouldn't do this with VG because of the higher minimums but I think they have similar. What if you have $5 because a dividend slipped in before your grant got paid?

 

[audreyh1]

No fee if the balance is 0? For Fido I see an annual fee charge of the greater of 0.6% or $500. Assume you probably wouldn't do this with VG because of the higher minimums but I think they have similar. What if you have $5 because a dividend slipped in before your grant got paid?

I think it's greater of 0.6% or $100 annual fee at Fido.