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Year-End Planning-Charitable Giving
By Gary Case

Are you looking for an effective way to donate to your favorite charity while maximizing tax benefits? Consider a donor-advised fund that provides an attractive way to give to your favorite charity.

What is a donor-advised fund? A donor-advised fund is a charitable giving vehicle that allows an individual or family to make an irrevocable contribution of personal assets to a public charity, and at any time afterward to recommend grants to charitable organizations.

Donor-advised funds are administered through a public charity that pools donor's contributions, invests them and makes grants to charitable organizations upon the recommendations of donors.

Donor-advised funds provide highly attractive tax benefits, and individuals face none of the administrative responsibilities that other forms of charitable giving entail, such as annual IRS filings.

Donations to donor-advised funds earn an immediate federal income tax deduction for the entire contribution (subject to any applicable limitations on charitable contributions). Donors can then recommend grants to charitable organizations on their own timetable. It's that simple—make the donation, take the tax deduction and recommend grants whenever. This approach eliminates the year-end pressure to select a charity and make a donation.

Here's how it works. A donor:

  • Makes an irrevocable contribution of personal assets (cash, stocks, bonds and mutual funds).
  • Takes an immediate tax deduction for the contribution.
  • Recommends an investment strategy for the contribution.
  • Recommends grants to charitable organizations.

Contributions to a Donor Advised Fund are irrevocable, and tax deductible on the date the charitable contribution leaves the donor's control. The fund manages the assets in the fund, which grow tax free, and potentially can result in greater grants to charity.

Understanding the tax benefits: Donor advised funds offer many tax advantages. In addition to receiving an immediate tax deduction, donors have the flexibility to designate grants whenever it best suits them and the convenience of being able to more easily track and plan charitable activities for future years.

A donor's contribution to the fund is an irrevocable charitable donation, fully deductible on the date it's received by the foundation, subject to any applicable limitations on charitable contributions. The extent of the deduction depends on the type of asset being contributed, as well as the donor's particular tax situation.

Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. Material discussed herewith is





meant for general illustration and/or informational purposes only. Please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.

You should always consult your legal and tax advisors to discuss the personal circumstances regarding your income and estate taxes.

Types of Contributions

  • Cash
  • Publicly traded securities
  • Restricted, closely held or non publicly traded securities
  • Appreciated real estate
  • Art or other collectibles
  • Deferred contributions

Estate taxes

All contributions to a donor advised fund are separate from the donor's estate and therefore are generally not subject to estate tax or probate.

Account income
Any income to a client's donor-advised fund account resulting from investment growth is neither taxed to the donor nor is deductible as an additional charitable contribution.

Capital gains
One of the most rewarding benefits of donor-advised funds is the ability to contribute appreciated assets without incurring capital gains tax liability.

Advantages of donating appreciated securities
Donor advised funds may provide a more efficient way to contribute appreciated assets to charity. When you contribute them to your account, you can deduct their fair market value without incurring any capital gains liability—so you can give more, at less cost to you.

Consider this example--A charitably minded individual invested $10,000 in stock several years ago. Today the shares are worth $100,000. This individual would like to use the shares to establish a scholarship program at his alma mater to give less fortunate students the chance to earn an education. He has two options: he can sell all his stock and donate the cash proceeds to the university or he can contribute the securities to a donor advised fund.
If he sells the stock, his contribution would be reduced by $13,500 (assuming a tax rate of 15%) because his long-term capital gain is $90,000. In losing $13,500 to capital gains tax, his total contribution to the university would be $86,500, not $100,000.

On the other hand, if he were to contribute the securities to donor advised fund, the earnings on his appreciated stock would not be subject to capital gains tax—so he could give the full $100,000 to the university. His contribution would also have the potential to grow tax-free, making it possible for him to potentially give more over time.


Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Cornerstone Financial Planning are not affiliated.