$ ?s: The Gift that Keeps on Giving

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Money Questions

Q: We plan to use appreciated stock for charitable giving and are looking into using a Schwab Charitable Fund. Do you have any feedback on this strategy?

Sincerely, Charity Feelings

$ ?s answered by Matthew Illian, CFP®


Dear Mrs. Feelings,

I commend your generosity, but a donor-advised fund is only the correct option in a limited number of scenarios.

For those who are not familiar with the Schwab Charitable Fund, these donor-advised funds are accounts that allow you donate appreciated stock into them. They allow the owner to take a current year tax deduction but do not require that you distribute funds immediately.

If you contribute $25,000 in appreciated stock, you may be eligible for an immediate $25,000 deduction. However, you should not assume that a gift of any size is deductible because charitable deductions are limited to 30% of adjusted gross income (AGI) for appreciated securities.

Let’s start out noting the situations when a donor-advised fund is the right option. Donor-advised funds are useful when you have appreciated stock and plan to make many small gifts. The Schwab Charitable Gift Account allows you to make gifts for as little as $50.

Another benefit of donor-advised funds is that donations can be made discreetly. Direct gifting stock will require you to share your personal information with a charity to receive a tax deduction.

The last benefit is when you are attempting to take an immediate tax deduction but do not want to donate these funds all at once. Donor-advised funds allow you to delay a donation for years to come.

Giving appreciated stock directly to a charity is typically the most cost-efficient giving method. The Schwab Charitable Gift Account charges a competitive 0.6% annual administrative fee on the first $500,000, which is on top of investment management expense ratios. Avoiding this administrative fee can save you thousands over the years.

Secondly, giving directly over time will likely maximize your tax benefits. Go back to the assumption that you have a $25,000 appreciated security and assume with me that you only want to donate or distribute $5,000 a year. If your investments grow 10% a year, your total donation and your total charitable deduction will be $31,077. However, if you use a donor advised fund, your total deduction will only be $25,000 because you are not able to deduct the growth.

Those who are donating over $250,000 should consider a private foundation for even greater flexibility and tax efficiency, but I will save this topic for another day.

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Former Contributor

Matthew Illian was a Wealth Manager at Marotta Wealth Management from 2007 to 2016. He specialized in small business consulting, college planning, and retirement plans.