DAF - when is it right to do?

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wabash_sphinx
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DAF - when is it right to do?

Post by wabash_sphinx » Sat Dec 09, 2017 6:18 pm

At what point would you say a DAF is appropriate to open?

Is there a rough rule of income or donation amount where this is considered appropriate?

Thanks

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Ged
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Re: DAF - when is it right to do?

Post by Ged » Sat Dec 09, 2017 7:23 pm

Timing seems to be a matter of convenience. I did mine just before I retired to lump several years of donations into a high income year to obtain maximum tax advantage.

You could do it for other reasons too. I really liked the simplification of record keeping I got with a DAF.

As far as amounts, most funds have a minimum donation level of a few thousand. Anything over that would be fine.

There are some fees associated with DAFs. Fidelity, one of the lowest Fee DAF providers, for example charges $100 per year as a minimum. If this is a significant percentage of your annual giving maybe a DAF is not the best choice for you.

Rus In Urbe
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Re: DAF - when is it right to do?

Post by Rus In Urbe » Sun Dec 10, 2017 3:18 pm

We just started our DAF this year, in part because I needed a larger tax deduction, and also because it would inspire my SO and me to give larger and more strategic gifts by organizing our philanthropy.

For simplicity sake, we went with Vanguard Charitable---fees are moderate, the website very clear, there are good links to research various charities (for instance, one that we had targeted to give to, we decided not to based on information provided by these links). The DAF account we set up mandated a $25K initial gift, and the grants are made with minimum of $500; this worked for us, but may not work for everyone. After making our initial deposit, we invested the fund aggressively and will be adding to it in the future in hopes of being in a kind of endowment situation, giving primarily out of dividends earned.

We did not disperse all the money we put in this year (but of course take the full deduction for 2017). We work with our tax accountant to get her input on how much is strategically helpful for us in offsetting taxes (and we may give more or less than that based on other factors).

When is a good time to start a DAF? When you feel like you want to make a commitment to giving; when you feel like you have more than you need; when you feel like it is the right thing to do for your own well-being.

Good luck to you in your philanthropy!

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dm200
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Re: DAF - when is it right to do?

Post by dm200 » Sun Dec 10, 2017 3:54 pm

wabash_sphinx wrote:
Sat Dec 09, 2017 6:18 pm
At what point would you say a DAF is appropriate to open?
Is there a rough rule of income or donation amount where this is considered appropriate?
Thanks
There are many reasons for opening and using a DAF. I don't think (directly at least) income or donation amount is the "key".

1. You want to make anonymous donations - and still get the tax deduction for the contribution. Anonymous donations can keep you off the solicitation lists you get on by making even a small donation.

2. Tiy want to donate the funds or appreciated securities now to get tax deduction - but have not decided exactly where and how much for each charity.

3. You want to make a significant charitable donation (say for tax purposes) now and you want this money to fund your "cause" over many years AND a direct donation (for any of several reasons) would not or could not accomplish that.

4. You want to fund the DAF and have a long or very long annnual donation(grant) stream to target charities or places of worship, etc. You want this to continue after you are gone by designation successors to keep on doing it.

5. Probably some others as well.

wabash_sphinx
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Re: DAF - when is it right to do?

Post by wabash_sphinx » Sun Dec 10, 2017 4:01 pm

Thanks to all for the input. I'm not hearing many cons to this.

I'm in a situation of surplus and have goals to give over the long term. Sounds like a DAF is a good decision. Thanks again.

aristotelian
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Re: DAF - when is it right to do?

Post by aristotelian » Sun Dec 10, 2017 4:37 pm

Any time you want to give to charity and you itemize your deductions and/or have long term appreciated shares.

Keep in mind, if the tax plan we are not allowed to talk about passes, you will have to donate a lot more to get the charitable deduction next year. Might be a good idea to get as much in the DAF as you can by the end of the year.

NotWhoYouThink
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Re: DAF - when is it right to do?

Post by NotWhoYouThink » Sun Dec 10, 2017 4:44 pm

A couple of reasons not to. These reasons will apply to only a limited number of people, but you could be one of them.

Your current or former employer will match your charitable donations to some organizations, but only if the donation is from you individually, not if the donation is from your DAF.

The organization you donate the most to provides state tax credits to donors that significantly reduce the net cost of donating. But again, the credits only work if the donor has a state tax obligation, which you might but your DAF will not.
Last edited by NotWhoYouThink on Sun Dec 10, 2017 8:24 pm, edited 1 time in total.

Pigeye Brewster
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Re: DAF - when is it right to do?

Post by Pigeye Brewster » Sun Dec 10, 2017 7:35 pm

dm200 wrote:
Sun Dec 10, 2017 3:54 pm

There are many reasons for opening and using a DAF. I don't think (directly at least) income or donation amount is the "key".

1. You want to make anonymous donations - and still get the tax deduction for the contribution. Anonymous donations can keep you off the solicitation lists you get on by making even a small donation.

2. Tiy want to donate the funds or appreciated securities now to get tax deduction - but have not decided exactly where and how much for each charity.

3. You want to make a significant charitable donation (say for tax purposes) now and you want this money to fund your "cause" over many years AND a direct donation (for any of several reasons) would not or could not accomplish that.

4. You want to fund the DAF and have a long or very long annnual donation(grant) stream to target charities or places of worship, etc. You want this to continue after you are gone by designation successors to keep on doing it.

5. Probably some others as well.
This is an excellent list of reasons.

#2 was the determining factor for me. I have some low-basis Vanguard shares that I've been using for charitable donations over the last few years and buying back to reset my basis at a higher level. However, the charity has to set up a Vanguard account and the donation has to meet the fund minimum. That fund minimum requirement limited the number of charities I could fund with appreciated shares. Setting up a Fidelity DAF (with its $50 minimum donation) has made it possible to fund pretty much all of our donations using appreciated fund shares.

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dm200
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Re: DAF - when is it right to do?

Post by dm200 » Sun Dec 10, 2017 8:28 pm

Pigeye Brewster wrote:
Sun Dec 10, 2017 7:35 pm
dm200 wrote:
Sun Dec 10, 2017 3:54 pm
There are many reasons for opening and using a DAF. I don't think (directly at least) income or donation amount is the "key".
1. You want to make anonymous donations - and still get the tax deduction for the contribution. Anonymous donations can keep you off the solicitation lists you get on by making even a small donation.
2. Tiy want to donate the funds or appreciated securities now to get tax deduction - but have not decided exactly where and how much for each charity.
3. You want to make a significant charitable donation (say for tax purposes) now and you want this money to fund your "cause" over many years AND a direct donation (for any of several reasons) would not or could not accomplish that.
4. You want to fund the DAF and have a long or very long annnual donation(grant) stream to target charities or places of worship, etc. You want this to continue after you are gone by designation successors to keep on doing it.
5. Probably some others as well.
This is an excellent list of reasons.
#2 was the determining factor for me. I have some low-basis Vanguard shares that I've been using for charitable donations over the last few years and buying back to reset my basis at a higher level. However, the charity has to set up a Vanguard account and the donation has to meet the fund minimum. That fund minimum requirement limited the number of charities I could fund with appreciated shares. Setting up a Fidelity DAF (with its $50 minimum donation) has made it possible to fund pretty much all of our donations using appreciated fund shares.
Let me add #6. You want to make a donaton of appreciated stork or mutual fund shares and get the tax deduction, BUT the organization you wish to support may not be ready, willing and fully able to handle it in a timely and efficient manner. A DAF is expert and efficient in all aspects of doing this.

and #7. You wish to make donations of the proceeds of appreciated stock or mutual fund shares to multiple organizations and splitting the shares, etc. would be a mess (both for you and the multiple organizations. Donate all to a DAF - then split the "grants"

euroswiss
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Re: DAF - when is it right to do?

Post by euroswiss » Mon Dec 11, 2017 10:28 am

NotWhoYouThink wrote:
Sun Dec 10, 2017 4:44 pm
A couple of reasons not to
Your current or former employer will match your charitable donations to some organizations, but only if the donation is from you individually, not if the donation is from your DAF
That is an important point to consider - I agree.

Also worth pointing out (although most folks on this board probably understand this already): while you do retain “control” over distributions, investment options, etc, DAF contributions are irrevocable, so no way of getting them back, even for personal emergencies.

Pigeye Brewster
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Re: DAF - when is it right to do?

Post by Pigeye Brewster » Mon Dec 11, 2017 10:41 am

euroswiss wrote:
Mon Dec 11, 2017 10:28 am

That is an important point to consider - I agree.

Also worth pointing out (although most folks on this board probably understand this already): while you do retain “control” over distributions, investment options, etc, DAF contributions are irrevocable, so no way of getting them back, even for personal emergencies.
And a DAF can't be used to fulfill any outstanding pledges of the donor that are legally enforceable.

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dm200
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Re: DAF - when is it right to do?

Post by dm200 » Mon Dec 11, 2017 10:52 am

Pigeye Brewster wrote:
Mon Dec 11, 2017 10:41 am
euroswiss wrote:
Mon Dec 11, 2017 10:28 am

That is an important point to consider - I agree.

Also worth pointing out (although most folks on this board probably understand this already): while you do retain “control” over distributions, investment options, etc, DAF contributions are irrevocable, so no way of getting them back, even for personal emergencies.
And a DAF can't be used to fulfill any outstanding pledges of the donor that are legally enforceable.

True, but the key is "legally enforceable". All of the kinds of "pledges" I have either made or have been asked to make say that they are not "legally enforceable".

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dm200
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Re: DAF - when is it right to do?

Post by dm200 » Mon Dec 11, 2017 10:53 am

Funds in a DAF, since they are no longer "yours" are the ultimate in "asset protection" as well, or in having "assets" for qualification for anything involving your level of assets.

inbox788
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Re: DAF - when is it right to do?

Post by inbox788 » Mon Dec 11, 2017 11:30 am

dm200 wrote:
Sun Dec 10, 2017 8:28 pm
A DAF is expert and efficient in all aspects of doing this.
For the most part, yes, but this year, I encountered what sounds like a new employee in a large organization who may not be expert or efficient. I've been doing annual appreciated stocks from a major broker the last few years, and I only had to list the broker by name, and they took care of the back end. However, this year, I get a call from the DAF asking me for the mailing address for my brokerage. I think they were going to send a physical letter to the address that my brokerage account customer service was being serviced, which I suspect would cause a lot of confusion, since they're mainly equipped to open/close accounts and do typical stock trades. Anyway, I went ahead and gave them what they wanted, but also mentioned that I've been doing this for several years, and they never needed a physical address. I always assumed there was a more efficient (direct online system) where they did these type of transactions, and asked the rep to look into how things were done in prior years. It's been a couple of weeks and I'm still waiting for the contribution to complete. I'll give them a week or so more and follow up to make sure it gets in by year end.

Vanguard is good, but the lower limits (opening and minimum donation) at Schwab and Fidelity make entry easier. The minimum $100 annual fee vs 0.60 EF means your actual EF is higher unless your balance is > $16,666, so I consider this around this range as the sweetspot for expense minimization/optimization.

Pigeye Brewster
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Re: DAF - when is it right to do?

Post by Pigeye Brewster » Mon Dec 11, 2017 11:31 am

dm200 wrote:
Mon Dec 11, 2017 10:52 am
True, but the key is "legally enforceable". All of the kinds of "pledges" I have either made or have been asked to make say that they are not "legally enforceable".
That is good that you ask. I asked one charity about it and they didn't know. And their pledge card didn't specify if it was or wasn't.

The research I've done indicates that it depends on the organization and also on applicable state law. The classic example given is a multi-year pledge to a college or hospital for a building, often with naming rights involved. Donor makes the pledge then has financial problems and either cannot or will not honor the remaining balance of the pledge. Does the charity attempt to enforce or not, or they may even be required by state law to attempt to enforce.

The charity also has the option to release a donor from a pledge. I saw a college gift acceptance policy online that explicitly stated they would release any outstanding pledges before accepting funds from a DAF.

Both Fidelity Charitable and Vanguard Charitable have "intent to recommend" language available on their websites that can be used in lieu of an actual pledge.

inbox788
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Re: DAF - when is it right to do?

Post by inbox788 » Mon Dec 11, 2017 12:10 pm

Pigeye Brewster wrote:
Mon Dec 11, 2017 11:31 am
dm200 wrote:
Mon Dec 11, 2017 10:52 am
True, but the key is "legally enforceable". All of the kinds of "pledges" I have either made or have been asked to make say that they are not "legally enforceable".
That is good that you ask. I asked one charity about it and they didn't know. And their pledge card didn't specify if it was or wasn't.

The research I've done indicates that it depends on the organization and also on applicable state law. The classic example given is a multi-year pledge to a college or hospital for a building, often with naming rights involved. Donor makes the pledge then has financial problems and either cannot or will not honor the remaining balance of the pledge. Does the charity attempt to enforce or not, or they may even be required by state law to attempt to enforce.

The charity also has the option to release a donor from a pledge. I saw a college gift acceptance policy online that explicitly stated they would release any outstanding pledges before accepting funds from a DAF.

Both Fidelity Charitable and Vanguard Charitable have "intent to recommend" language available on their websites that can be used in lieu of an actual pledge.
You can always edit the pledge card to add "not legally enforceable". What is the charity to do? Not accept your pledge? And when they receive a check from he DAF, would they return it? Same with legal contracts that you can edit. Online boilerplate filled forms can lead to the nasty situation where you make a pledge, the DAF sends them the donation, but the charity doesn't make the connection and tries to hold you to your pledge. It's a potential risk, but I've yet to hear of a case where the charity has made this type of error.

BTW, I've been annoyed by these online fundraising efforts that try to collect directly on their website, and I've been unable to use my DAF, so I've generally avoided these campaigns. However, last year, I was able to get enough information about a campaign, NOT make an online pledge, but do the donation via the DAF with the campaign information, and on 3 occasions, it seems the organization received the donation and the individual who was fundraising got the credit/recognition for the donation. It's a little more trouble, but saves me the trouble later of keeping track of the donation records and tax deductions, and it's more cost efficient for me (appreciated stock), so I can be a little more generous going the DAF route.

Also, if you read my comment above about the newby at the DAF, I just got a call from the brokerage, so it looks like the contribution is being processed on schedule and should be complete very soon. Anyone contemplating a donation should do it ASAP as deadlines are approaching, and these transactions do take some time, especially if there is complication that needs more attention.

Pigeye Brewster
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Re: DAF - when is it right to do?

Post by Pigeye Brewster » Mon Dec 11, 2017 1:32 pm

inbox788 wrote:
Mon Dec 11, 2017 12:10 pm
You can always edit the pledge card to add "not legally enforceable". What is the charity to do? Not accept your pledge? And when they receive a check from he DAF, would they return it? Same with legal contracts that you can edit. Online boilerplate filled forms can lead to the nasty situation where you make a pledge, the DAF sends them the donation, but the charity doesn't make the connection and tries to hold you to your pledge. It's a potential risk, but I've yet to hear of a case where the charity has made this type of error.
Sure, that would be one approach. I only have a couple of situations where a pledge is requested, so I simply prepared a form letter with the "intent to recommend" language below and sent it in instead of the pledge card. Removes all doubt.

From Fidelity Charitable website:
Tell charities that you "intend to recommend a grant from your donor advised fund in the amount of [$]" so they know your grant recommendation is being made in response to a charitable organization's request for a pledge.

When submitting a grant recommendation online, once you ensure the charity does not consider your pledge to be legally binding, select "Pledge (non-binding)" from the grant purpose menu.

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dm200
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Re: DAF - when is it right to do?

Post by dm200 » Tue Dec 12, 2017 10:11 am

Pigeye Brewster wrote:
Mon Dec 11, 2017 11:31 am
dm200 wrote:
Mon Dec 11, 2017 10:52 am
True, but the key is "legally enforceable". All of the kinds of "pledges" I have either made or have been asked to make say that they are not "legally enforceable".
That is good that you ask. I asked one charity about it and they didn't know. And their pledge card didn't specify if it was or wasn't.
The research I've done indicates that it depends on the organization and also on applicable state law. The classic example given is a multi-year pledge to a college or hospital for a building, often with naming rights involved. Donor makes the pledge then has financial problems and either cannot or will not honor the remaining balance of the pledge. Does the charity attempt to enforce or not, or they may even be required by state law to attempt to enforce.
The charity also has the option to release a donor from a pledge. I saw a college gift acceptance policy online that explicitly stated they would release any outstanding pledges before accepting funds from a DAF.
Both Fidelity Charitable and Vanguard Charitable have "intent to recommend" language available on their websites that can be used in lieu of an actual pledge.
I have been active in a certain entity for the last 45 years, and have been involved (in various ways) in several fundraising and capital campaigns over the decades. We engaged a "consultant" to help drive these campaigns (money well spent) and one (of many) keys to a successful campaign is getting "pledges" to be paid over 3-5 years (in our cases). Based on that side of the fence, I really understand why pledges are so commonly requested. Our campaigns/pledges, though, were always clearly stated as not legally enforceable.

I suppose there are reasons why some such campaigns might need to have legally enforceable "pledges", but I suspect those are uncommon. For example, if a building is to be built and named "The Bogle House" and it is completed before the "Bogle" pledge was 100% fulfilled, you might want the pledge to be "legally enforceable".

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