A Complete Guide To Using A Donor Advised Account For Your Charitable Giving

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Using appreciated stock for your charitable giving can save thousands of dollars which otherwise would have to be paid in capital gains tax. Shrewd investors use the gifting of appreciated stock to save on their taxes.

Normally a gift of charitable stock must be transferred from your brokerage account directly to a charity’s stock liquidation account. Nonprofits have such an account and they have standing orders to liquidate (sell) anything which is transferred into the account and transfer the money to charity’s bank account. This allows the charity to give this account number to donors without compromising an active account containing real assets.

This transfer directly from your account to the charity’s account works for large gifts, but is impractical for smaller gifts. There may be a sales charge to the charity when they sell the stock and there is paperwork for every simple gift – even of small amounts.

To facilitate charitable giving, all the major custodians provide the ability to have a donor advised fund for charitable giving. This allows investors to transfer their appreciated stock into the account, getting a taxable deduction for the donation. Later, the donor (investor) can designate which charities should receive the proceeds using an interface which is similar to a bill-pay process.

Here is additional information on the process of using a Donor Advised Fund for Charitable Giving:

Decide That You Should Use a Donor Advised Fund For Your Charitable Giving: You should give at least $5,000 initially and at least $500 for subsequent gifts. The minimum gift to a charity is $50. And there is a $100 administrative charge every year. The donor advised fund has to facilitate at least $1,000 of additional gifts through appreciated stock which would otherwise have been giving in cash in order to justify the fee. [For example, imaging a $333 stock which has appreciated to $1,000. If you sold it you in order to generate money for a cash gift there would be $667 in capital gains. At the 15% capital gains tax rate you would owe $100. Thus the break even point for a donor advised fund is at least $1,000 in what would otherwise be cash gifts.]

Here are the five easy steps once you have decided that you should use a donor advised fund for your charitable giving:

1. Open A Donor Advised Fund: Every major brokerage has their own version, SchwabFidelity, Vanguard, etc.

2. Select An Asset Allocation For Any Money Held In The Donor Advised Fund: Keeping the assets invested will allow you to give more if there is any time between your donation and designating grants to charities.

3. Pick Which Stocks You Should Use For Your Charitable Giving: You may want to pick what you are giving based on what stock or fund is most highly appreciated, most in need of rebalancing, or even stocks that are subject to a tender offer.

4. Transfer the stocks to your charitable account: Writing instructions to your custodian which specify the exact number of shares and trade lot(s) which are being donated to the charitable donor advised fund.

5. Learn How To Designate Charitable Gifts In Your Schwab Donor Advised Account: The process is as simple and easy as any bank’s bill pay. The link above lists the step by step instructions for using Schwab’s Charitable donor advised fund.

Return to step 5 when you are ready to gift again.

Return to step 3 when your donor advised account is running low on value.

Follow David John Marotta:

President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.