How are you handling your donor advised charitable fund?

[gcgang]

We haven't done a good job giving away the DAF assets. Too much LBYM habits, I guess. Our DAF was originally set up thru Merrill, but the community foundation that holds the assets switched to Morgan Stanley. Just log in, set up your donees (many are in their search database, otherwise you need to contact the charity to get their tax id, etc), and tell them how much to give. Gave more than usual to the DAF this year as an alternative to selling stock to rebalance.

 

[LOL!]

That's fine if it's what you want to do, but we would be very reluctant to do that.

We contribute to the DAF each year, and grant about 20% of the balance.
While it would be nice to make larger grants at times, we feel the charities would simply spend it when they get it, and then we would have a guilt trip about not contributing to them in later years.

I believe the IRS wants you to grant 5% of the balance each year, but Fidelity says 20% is typical so that's what we do. This way the balance goes down slowly and we will be able to support our favorite causes for quite a while. The bonus is that the money sitting in the fund has been appreciating nicely lately, so we get to give even more than we put in the fund.

I see what you are saying, but the way I think about this is as follows: Money sitting in the DAF that appreciates doesn't help me with reducing my taxes, so I would rather let that money appreciate in my taxable account instead, then donate the appreciated shares.

So I earmark shares in my taxable account for donation in the future. One might say I have 2 DAFs: My personal portion in my taxable account and a Fidelity DAF. Or one can say I have two pockets: a right pocket and a left pocket. All the money in those pockets is going to go to charity, but I must always move the money first from the right pocket to the left pocket then to favorite causes.

I let things appreciate in my personal portion (right pocket), then donate to the Fidelity DAF (left pocket) when I am ready to dole it out to charities. I see no point in have the Fidelity DAF portion appreciate. I can still support my favorite causes for quite a while because I have the assets in my personal portion where they continue to appreciate.

 

[gerntz]

Fund the account with stocks bearing high capital gains, so you don't have to pay that tax.

Unless each person's estate will ultimately exceed $5.4M (today's limit, indexed to inflation) and you hadn't planned to sell the stock otherwise, there's no tax savings gain to you or your heirs as the cost basis steps up to value at death. Could be better off with IRA withdrawal - which doesn't step up & somebody will have to ultimately pay taxes on - and donating the withdrawn funds for a net no income. Of course you have to be eligible for penalty-free withdrawal.

 

[nwsteve]

Noticed that Fidelity has a .6% admin fee of DAF for balances under 500 million. How and when does that come out or paid? Do they use a average balance, balance on a given date or ?
Thanks
Nwsteve

My "bad", .6% is for balance of 500 THOUSANDS not million!
nwsteve

 

[audreyh1]

Fidelity fund for charitable giving on track to surpass United Way - Business - The Boston Globe

Fidelity Investments, best known for mutual funds and retirement plans, now oversees more in charitable contributions than much better-known philanthrophic organizations such as the Salvation Army and the American Red Cross, and it is on the verge of surpassing the United Way.

 

[JoeWras]

We use it primarily for the convenience of donating appreciated funds and stocks. It is easy to work with Vanguard Charitable for this compared to a charity directly.

Ultimately, we give out most of it per year, with a slightly year over year build in the DAF. I hope to build it more aggressively the next few years to have a giving buffer in retirement.

For small donations, we still write a check since V.C.'s minimum is $500.

 

[LOL!]

I wanted to mention that if one donates shares from a Fidelity brokerage account to a Fidelity DAF, then Fidelity has a tool to help one pick the shares that are long-term and have the highest gains (lowest cost basis). That is, the shares that give you the most tax bang for the buck.

Presumably, one already knows what one is doing, but this was a nice confirmation of the process. In the past, we have donated shares from other brokerage accounts, but this year we transferred shares to our Fidelity brokerage account first. We also got a bonus for doing so. Double-bang for the buck!

 

[audreyh1]

I wanted to mention that if one donates shares from a Fidelity brokerage account to a Fidelity DAF, then Fidelity has a tool to help one pick the shares that are long-term and have the highest gains (lowest cost basis). That is, the shares that give you the most tax bang for the buck.

Presumably, one already knows what one is doing, but this was a nice confirmation of the process. In the past, we have donated shares from other brokerage accounts, but this year we transferred shares to our Fidelity brokerage account first. We also got a bonus for doing so. Double-bang for the buck!

Yes, I noted that last time, and I'm really going to count on it this time. Because I'm going to carefully donate some of the shares I need to trim for rebalancing in Jan such that it doesn't show up on our AGI next year. I was going to sell our highest basis shares for the REITs that have done so well this year. But because of this thread I realized I could donate some of the older shares with a rather low basis to fulfill our charity budget.

Makes rebalancing a little more complicated - but sure is nice to be able to minimize AGI increase due to rebalancing!

The brokerage account where we hold our retirement portfolio is the one linked to the donor-advised account, so it makes it pretty clean to implement, once you've figured out the numbers.

 

[FIREd]

I admit putting much more thoughts about the money going in to the DAF than going out. I distribute 5% of the balance each year. After reading this thread, I am wondering whether we should not be granting more each year.

 

[audreyh1]

I ran across a couple of articles highly critical about DAFs because they don't require individuals to donate a percentage of the assets each year, and because the financial firms "have their hands in the pot" - getting fees for managing the money, and little incentive is provided for people to actually donate.

They were decrying that the money wasn't made immediately available to charities, but that a large chunk was left to invest.

I don't completely agree with the point of view, although having the same 5% annual donation requirement as a private foundation would seem like a reasonable thing. And I like having the option of creating my own "foundation" using a DAF.

Fidelity Charitable exceeds that donation rate by quite a bit.

As long as we are funding ours, we'll probably keep the payout rate high - like 30%. If we every get in a situation where we can no longer donate, we would probably drop it down to a lower rate that would hopefully be self-sustaining.

 

[JoeWras]

I ran across a couple of articles highly critical about DAFs because they don't require individuals to donate a percentage of the assets each year, and because the financial firms "have their hands in the pot" - getting fees for managing the money, and little incentive is provided for people to actually donate.

They were decrying that the money wasn't made immediately available to charities, but that a large chunk was left to invest.

I don't completely agree with the point of view, although having the same 5% annual donation requirement as a private foundation would seem like a reasonable thing. And I like having the option of creating my own "foundation" using a DAF.

Fidelity Charitable exceeds that donation rate by quite a bit.

As long as we are funding ours, we'll probably keep the payout rate high - like 30%. If we every get in a situation where we can no longer donate, we would probably drop it down to a lower rate that would hopefully be self-sustaining.

Then I hope the same article criticized every foundation and endowment that exists out there.

Some of us are releasing 80% or more (like us), so we make up for those who are not. We'll eventually do less.

And ultimately, it will go to charity.

 

[audreyh1]

Noticed that Fidelity has a .6% admin fee of DAF for balances under 500 thousands. How and when does that come out or paid? Do they use a average balance, balance on a given date or ?
Thanks
Nwsteve

The admin fee for the first $500,000 is 0.6% or $100, whichever is greater.

Looking at our records, we were assessed a fee called an "Annual Administrative Adjustment" of $32.35 on 7/30/14. It was taken out proportionately from the various funds (pools) in our account.

This is well under the $100 we would have expected, since our current balance was a little under $8K at the time.

Here is the official language from the Fidelity Charitable guidelines document:

The administrative fee of 0.60% is charged to the investment pool on a daily basis and affects the net asset value of the Giving Account pool holdings. Giving Accounts for which the 0.60% administrative fee is less than $100* for a given fiscal year will be assessed the difference between $100 and that 0.60% fee.† Such charges take place at the end of the fiscal year‡ and are prorated for Giving Accounts funded during the course of the fiscal year.

So 7/30/14 was the end of the fiscal year. And otherwise you don't "see" the 0.6% charge against your investment pool as it comes out of the NAV every day. That's how they pro-rate. And then any difference between that and the $100 min, is what is charged at the end of July.

So once you exceed $16,667 in the DAF, you will stop seeing the annual admin fee/adjustment.

 

[audreyh1]

I recently found out that DAFs are not qualified to receive IRA charitable rollovers that qualify as part of RMDs. That's disappointing.

We are more than 10 years away from DH having to take RMDs, but that would be a nice option. Anything can happen in the next 10 years.

Also - SEP-IRAs and 401Ks are disqualified from the IRA charitable rollovers, which is another wrinkle. You have to rollover whatever you want to donate to a regular IRA first.