Using donor advised fund to diversify stock with large capital gains

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tj-longterm
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Using donor advised fund to diversify stock with large capital gains

Post by tj-longterm » Wed Jun 13, 2018 12:47 pm

In addition to our regular Bogleheads-style portfolio, we are lucky enough to have a single stock (as a result of work) that has substantially appreciated -- nearly 100% of the value is capital gains. Our long term financial plan does not require the sale of this stock to fund our lifestyle or retirement, so we have been planning to use it to make donations to charity, rather than selling it and donating 20%+ to the IRS, or attempting to hold it until our death many decades from now so that it can receive a stepped up basis for our heirs.

While it's possible that the best way to have a charitable impact is simply to donate it all today (and we're still considering that), we like the idea of spreading out our donations over the years, which is what we've been doing for a couple years now (donating smaller amounts of appreciated stock directly to charities).

Our accountant suggested that if we don't want to donate it all at once, we should consider putting it in a donor advised fund. That way we can collect a nice tax deduction this year (probably also better overall than giving each year given the high itemization limit), *and* we can diversify out of that stock, making it less risky to donate the money over a decade or two than if we continued to hold it all in a single stock.

I'm curious what people think about this strategy. Given the risk of a single stock, it seems preferable to holding this individiual stock for years and donating small chunks. And if we do find a worthy cause to donate all of it at once, we can still do that with the donor advised fund. Are there any downsides to consider? The fees do not seem too high.

47Percent
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Re: Using donor advised fund to diversify stock with large capital gains

Post by 47Percent » Wed Jun 13, 2018 1:18 pm

Your accountant just earned his fees and more. That's exactly what I would suggest given your write-up.

I did a double take when I read it and had to check to make sure I hadn't posted it myself -- except for the fact I did exactly what you are contemplating about two years ago and couldn't be happier.

Just a quick run down of my BOE calculation below..

Transferred to DAF $20K worth of shares with $10K cost basis.
Saved 20% in Federal and 9% in CA taxes in Cap gains taxes: Tax savings = $2,900.
Immediate deduction of $20K @ Fed 25%, CA 9%; Tax Savings = $6,800.
In essence I gave up $10,300 (20,000-2,900-6,800) and ended up with $20,000 in DAF.

In the last 18 months, I have donated $2.5K from DAF and the balance on the account is.. wait for it.... $20,800!!
Of course the market going up had quite a bit to do with it. But in the long run I guess you can factor in about 5% gain.
In the mean time, the original stock I got out of took a hit, went up a bit, languished, took a hit, tried to go up a bit and pretty much languished.

It is immensely satisfying, and what's more, it can be passed on to your heirs.
Last edited by 47Percent on Wed Jun 13, 2018 1:22 pm, edited 1 time in total.

letsgobobby
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Re: Using donor advised fund to diversify stock with large capital gains

Post by letsgobobby » Wed Jun 13, 2018 1:20 pm

We opened a DAF years ago in part for this reason: to unload the last of our single stock investments without paying capital gains taxes. We are very happy with our Fido DAF. It encourages us to give more.

Longdog
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Re: Using donor advised fund to diversify stock with large capital gains

Post by Longdog » Wed Jun 13, 2018 1:23 pm

That is exactly what I did last year. No downside.
Steve

jebmke
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Re: Using donor advised fund to diversify stock with large capital gains

Post by jebmke » Wed Jun 13, 2018 2:25 pm

The advice is sound. I'm sure the accountant will advise you with respect to the AGI limitation on DAF deductions for appreciated property. Just something to watch for.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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dm200
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Re: Using donor advised fund to diversify stock with large capital gains

Post by dm200 » Wed Jun 13, 2018 2:54 pm

tj-longterm wrote:
Wed Jun 13, 2018 12:47 pm
In addition to our regular Bogleheads-style portfolio, we are lucky enough to have a single stock (as a result of work) that has substantially appreciated -- nearly 100% of the value is capital gains. Our long term financial plan does not require the sale of this stock to fund our lifestyle or retirement, so we have been planning to use it to make donations to charity, rather than selling it and donating 20%+ to the IRS, or attempting to hold it until our death many decades from now so that it can receive a stepped up basis for our heirs.
While it's possible that the best way to have a charitable impact is simply to donate it all today (and we're still considering that), we like the idea of spreading out our donations over the years, which is what we've been doing for a couple years now (donating smaller amounts of appreciated stock directly to charities).
Our accountant suggested that if we don't want to donate it all at once, we should consider putting it in a donor advised fund. That way we can collect a nice tax deduction this year (probably also better overall than giving each year given the high itemization limit), *and* we can diversify out of that stock, making it less risky to donate the money over a decade or two than if we continued to hold it all in a single stock.
I'm curious what people think about this strategy. Given the risk of a single stock, it seems preferable to holding this individiual stock for years and donating small chunks. And if we do find a worthy cause to donate all of it at once, we can still do that with the donor advised fund. Are there any downsides to consider? The fees do not seem too high.
Yes - I think this an excellent strategy. You separate the benefits of making the donation to charity from the disbursement of funds to particular charities.

There are many fine charities (or places of worship) that may not, for a number of reasons, be able to spread use of a big chunk of money over time. You also may want the flexibility to defer various actual disbursement of funds over some number of years.

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GerryL
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Re: Using donor advised fund to diversify stock with large capital gains

Post by GerryL » Wed Jun 13, 2018 3:26 pm

This is what I am doing with my individual stock holdings (inherited and purchased from company plan). The inherited shares fed my DAF for the past few years, and I am now reducing the company share holdings, starting with the shares with the lowest cost basis. I may sell and reinvest some high cost basis shares depending on my tax situation. No rush. The pile of stock was amassed over a 20+ year career with the company, and it may take that long to whittle it down.

My plan is to possibly bunch the DAF contributions every two years in order to itemize deductions every other year.

aristotelian
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Re: Using donor advised fund to diversify stock with large capital gains

Post by aristotelian » Wed Jun 13, 2018 3:51 pm

+1. Assuming you have charitable goals that you would otherwise fund with cash, you (and the organizations you support) can get more bang for your buck by donating stocks with the most gains. This would be a perfect strategy to make the most of those stocks.

EDIT: One thing to keep in mind, in order to take full advantage of the standard deduction, you likely want to group donations together so as to exceed the standard deduction in some years, while claiming the standard deduction in other years. For example, if you plan to give $50K over five years, you donate all $50K in year 1, while claiming the standard deductions in years 2, 3, 4, and 5, giving you an extra $26K deduction in year 1 on top of avoiding the capital gains tax. If you spread the donations out, you never hit the standard deduction.
Last edited by aristotelian on Wed Jun 13, 2018 8:52 pm, edited 2 times in total.

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FIREchief
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Re: Using donor advised fund to diversify stock with large capital gains

Post by FIREchief » Wed Jun 13, 2018 6:50 pm

Joining the chorus..... Yes, a large (even one time) DAF donation is a great approach. I only have experience with Fidelity, and their DAF program (Fidelity Charitable) works great.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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gasdoc
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Re: Using donor advised fund to diversify stock with large capital gains

Post by gasdoc » Wed Jun 13, 2018 7:10 pm

Vanguard's DAF is also good- just be aware of their $500 minimum to recommended charities.

gas doc

47Percent
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Re: Using donor advised fund to diversify stock with large capital gains

Post by 47Percent » Wed Jun 13, 2018 8:10 pm

Schwab Charitable has been great to me.

$5000 minimum for the account; $500 minimum for additional contributions.
Just $50 minimum for grants -- i.e. recommendation to charities.

All the above numbers are quite reasonable.

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Stinky
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Re: Using donor advised fund to diversify stock with large capital gains

Post by Stinky » Wed Jun 13, 2018 8:30 pm

tj-longterm wrote:
Wed Jun 13, 2018 12:47 pm
That way we can collect a nice tax deduction this year (probably also better overall than giving each year given the high itemization limit), *and* we can diversify out of that stock, making it less risky to donate the money over a decade or two than if we continued to hold it all in a single stock.....

The fees do not seem too high.
I've done much the same thing. A few years ago, my company was purchased by another for cash, and I would have had a huge capital gains tax on appreciated common stock had I held the stock on the date the sale closed. Prior to sale, I donated my shares to Fidelity Charitable. Got a nice tax deduction, avoided $70k of capital gains tax entirely, and pre-funded charitable contributions for years to come. Now everything that I can, from regular church donations to United Way to etc. comes out of Fidelity Charitable.

I'm mostly with Vanguard, but was put off by their $500 minimum. Fidelity is only $50 minimum disbursement. Their website and app are both pretty good, so I would definitely choose Fidelity over Vanguard. Didn't check out Schwab at the time.
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NoHeat
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Re: Using donor advised fund to diversify stock with large capital gains

Post by NoHeat » Wed Jun 13, 2018 8:52 pm

The new tax law makes a combination of bunching and a DAF is the best way for my future charitable donations.

Bunching several years of donations into one year helps overcome the new high standard deduction.

The DAF accomplishes two things. Firstly, it makes smoothing possible. A big bunched donation to the DAF in just one year can be dispersed to charities gradually over several years. Secondly, it can easily accept not just cash but also appreciated securities.

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FIREchief
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Re: Using donor advised fund to diversify stock with large capital gains

Post by FIREchief » Wed Jun 13, 2018 11:00 pm

NoHeat wrote:
Wed Jun 13, 2018 8:52 pm
Secondly, it can easily accept not just cash but also appreciated securities.
This is something I would like to hear more about. I've often thought that if I inherited a problem asset (like 50% of a parent's house), that I might see if I could just "donate" my interest to a DAF and let their lawyers negotiate/finess/torture the other heirs into selling. The DAF would have nothing to lose. Any good stories like this?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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gasdoc
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Re: Using donor advised fund to diversify stock with large capital gains

Post by gasdoc » Thu Jun 14, 2018 8:28 am

FIREchief wrote:
Wed Jun 13, 2018 11:00 pm
NoHeat wrote:
Wed Jun 13, 2018 8:52 pm
Secondly, it can easily accept not just cash but also appreciated securities.
This is something I would like to hear more about. I've often thought that if I inherited a problem asset (like 50% of a parent's house), that I might see if I could just "donate" my interest to a DAF and let their lawyers negotiate/finess/torture the other heirs into selling. The DAF would have nothing to lose. Any good stories like this?
Doubt you can donate anything besides standard appreciated stocks and bonds and their corresponding funds to a DAF.

gasdoc

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Artsdoctor
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Re: Using donor advised fund to diversify stock with large capital gains

Post by Artsdoctor » Thu Jun 14, 2018 8:42 am

The responses above are uniformly positive. I would also strongly encourage you to open a DAF. You might find this article article:

https://www.kitces.com/blog/rules-strat ... le-giving/

I have both a Vanguard and Fidelity DAF because of how our taxable accounts are structured. I started with the Fidelity DAF many years ago and then opened the Vanguard DAF because I really had to transfer specific lots to optimize contributions (and I've had problems with complex specific lot transfers in the past). Fidelity is clearly superior, in my opinion, for the following reasons:

1. The minimums are smaller.
2. You can designate very specific representatives to contact within an organization to contact for questions and to notify once the grant arrives.
3. You can be very specific regarding grants made in memory of someone or on behalf of someone.

I've spoken to the people at the Vanguard DAF and I have no idea why they cannot do numbers 2 and 3 above; Vanguard will allow you to write the name of a person to notify with arrival of the grant but sometimes you need more (phone number, address, etc.), and sometimes the DAF will need to call the organization to verify eligibility. Consequently, I periodically transfer chunks of assets from the Vanguard DAF to the Fidelity DAF in order to make use of items 2 and 3 when I have to. It is a significant flaw in Vanguard's system which will not allow you to easily make a grant recommendation on behalf of someone, so I cannot recommend it as your only DAF.

letsgobobby
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Re: Using donor advised fund to diversify stock with large capital gains

Post by letsgobobby » Thu Jun 14, 2018 8:45 am

gasdoc wrote:
Thu Jun 14, 2018 8:28 am
FIREchief wrote:
Wed Jun 13, 2018 11:00 pm
NoHeat wrote:
Wed Jun 13, 2018 8:52 pm
Secondly, it can easily accept not just cash but also appreciated securities.
This is something I would like to hear more about. I've often thought that if I inherited a problem asset (like 50% of a parent's house), that I might see if I could just "donate" my interest to a DAF and let their lawyers negotiate/finess/torture the other heirs into selling. The DAF would have nothing to lose. Any good stories like this?
Doubt you can donate anything besides standard appreciated stocks and bonds and their corresponding funds to a DAF.

gasdoc
Not true at all.

https://www.fidelitycharitable.org/givi ... nate.shtml

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Artsdoctor
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Re: Using donor advised fund to diversify stock with large capital gains

Post by Artsdoctor » Thu Jun 14, 2018 8:47 am

gasdoc wrote:
Thu Jun 14, 2018 8:28 am
FIREchief wrote:
Wed Jun 13, 2018 11:00 pm
NoHeat wrote:
Wed Jun 13, 2018 8:52 pm
Secondly, it can easily accept not just cash but also appreciated securities.
This is something I would like to hear more about. I've often thought that if I inherited a problem asset (like 50% of a parent's house), that I might see if I could just "donate" my interest to a DAF and let their lawyers negotiate/finess/torture the other heirs into selling. The DAF would have nothing to lose. Any good stories like this?
Doubt you can donate anything besides standard appreciated stocks and bonds and their corresponding funds to a DAF.

gasdoc
Actually, you can donate appreciate illiquid assets as well:

https://www.fidelitycharitable.org/givi ... nate.shtml

[Ha! Letsgobobby beat me to the bunch but only by a second or two! :sharebeer ]

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dm200
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Re: Using donor advised fund to diversify stock with large capital gains

Post by dm200 » Thu Jun 14, 2018 10:03 am

Artsdoctor wrote:
Thu Jun 14, 2018 8:42 am
The responses above are uniformly positive. I would also strongly encourage you to open a DAF. You might find this article article:
https://www.kitces.com/blog/rules-strat ... le-giving/
I have both a Vanguard and Fidelity DAF because of how our taxable accounts are structured. I started with the Fidelity DAF many years ago and then opened the Vanguard DAF because I really had to transfer specific lots to optimize contributions (and I've had problems with complex specific lot transfers in the past). Fidelity is clearly superior, in my opinion, for the following reasons:
1. The minimums are smaller.
2. You can designate very specific representatives to contact within an organization to contact for questions and to notify once the grant arrives.
3. You can be very specific regarding grants made in memory of someone or on behalf of someone.

I've spoken to the people at the Vanguard DAF and I have no idea why they cannot do numbers 2 and 3 above; Vanguard will allow you to write the name of a person to notify with arrival of the grant but sometimes you need more (phone number, address, etc.), and sometimes the DAF will need to call the organization to verify eligibility. Consequently, I periodically transfer chunks of assets from the Vanguard DAF to the Fidelity DAF in order to make use of items 2 and 3 when I have to. It is a significant flaw in Vanguard's system which will not allow you to easily make a grant recommendation on behalf of someone, so I cannot recommend it as your only DAF.
Yes - we have Fidelity and it works very well.

We are regularly using the "in memory of" capability as we age and our "peers" are dying in incrasing frequency.

Making anonymous, small donations is very handy - keeps you off the mailing lists.

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Re: Using donor advised fund to diversify stock with large capital gains

Post by jebmke » Thu Jun 14, 2018 10:06 am

FIREchief wrote:
Wed Jun 13, 2018 11:00 pm
NoHeat wrote:
Wed Jun 13, 2018 8:52 pm
Secondly, it can easily accept not just cash but also appreciated securities.
This is something I would like to hear more about. I've often thought that if I inherited a problem asset (like 50% of a parent's house), that I might see if I could just "donate" my interest to a DAF and let their lawyers negotiate/finess/torture the other heirs into selling. The DAF would have nothing to lose. Any good stories like this?
Normally, an inherited asset has a stepped up basis so you would be donating a non-appreciated asset. This is probably sub-optimal from a tax perspective if you have other assets with unrealized long term capital gains.

I also question whether a DAF would accept a share of an asset.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: Using donor advised fund to diversify stock with large capital gains

Post by VaR » Thu Jun 14, 2018 10:38 am

Let's say that you itemize deductions every year and don't need to bunch your charitable donations.

I've read that lump sum contributions to a DAF can be suboptimal to annual contributions because with annual contributions, your future donations and thus your charitable deductions would be expected to be larger due to appreciation. As an example, you have a choice between donating $100,000 this year vs 1/5th of the lump sum over 5 years. If we assume 6% appreciation per annum, you would donate:
Year 1: $20k, $80k remainder
Year 2: $80k appreciates to $84.8k. You donate 1/4 or $21.2k; $63.6k remainder
Year 3: $63.6k appreciates to $67,416. You donate 1/3 or $22,472; $44,944 remainder
Year 4: $44,944 appreciates to $47,640. You donate 1/2 or $23,820; $23,820 remainder
Year 5: $23,820 appreciates to $25,250. You donate all it.

By this argument, over the 5 years you will receive $112,742 in charitable deductions.

OTOH, If you donate the entire $100k, you would only benefit from $100k in charitable deductions. OTOOH, this $100k deduction is all in the first year. So assuming you got a marginal benefit of 30% less paid in taxes and invested that sum today, over the next 5 years the additional benefit would be about $10k. OTOOOH, if we're going to account for the time-value of tax deductions, we'd have to recalculate the benefit of each of the incremental donations above back to the same comparison point in time. I'd be happy to do that calculation if anyone thought it was worth it.

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Artsdoctor
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Re: Using donor advised fund to diversify stock with large capital gains

Post by Artsdoctor » Thu Jun 14, 2018 1:19 pm

VaR wrote:
Thu Jun 14, 2018 10:38 am
Let's say that you itemize deductions every year and don't need to bunch your charitable donations.

I've read that lump sum contributions to a DAF can be suboptimal to annual contributions because with annual contributions, your future donations and thus your charitable deductions would be expected to be larger due to appreciation. As an example, you have a choice between donating $100,000 this year vs 1/5th of the lump sum over 5 years. If we assume 6% appreciation per annum, you would donate:
Year 1: $20k, $80k remainder
Year 2: $80k appreciates to $84.8k. You donate 1/4 or $21.2k; $63.6k remainder
Year 3: $63.6k appreciates to $67,416. You donate 1/3 or $22,472; $44,944 remainder
Year 4: $44,944 appreciates to $47,640. You donate 1/2 or $23,820; $23,820 remainder
Year 5: $23,820 appreciates to $25,250. You donate all it.

By this argument, over the 5 years you will receive $112,742 in charitable deductions.

OTOH, If you donate the entire $100k, you would only benefit from $100k in charitable deductions. OTOOH, this $100k deduction is all in the first year. So assuming you got a marginal benefit of 30% less paid in taxes and invested that sum today, over the next 5 years the additional benefit would be about $10k. OTOOOH, if we're going to account for the time-value of tax deductions, we'd have to recalculate the benefit of each of the incremental donations above back to the same comparison point in time. I'd be happy to do that calculation if anyone thought it was worth it.
You could be overthinking this. First, you have no idea if your appreciated asset will continue to appreciate; if you donate a certain amount now, you've locked that gain, essentially. During a bear market, you'd be "giving away" more shares over time with a marked decrease in market value.

Second, if you like, you can invest your DAF anyway you'd like. Some people invest funds conservatively while others may invest very aggressively if they're looking at continued grant recommendations far into the future.

Don't forget a practical issue as well. The new tax law has increased the standard deduction to $24,000 if MFJ and has decreased SALT to $10,000. Depending on what your mortgage interest amount is going to be, you might have to make a reasonable charitable contribution just to reach the $24,000 standard deduction. Obviously, if your total deductions amount to only $25,000, you're benefiting very little from itemizing. However, if you're batching your deductions, you may well find that that extremely large charitable contribution to your DAF becomes more valuable.

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FIREchief
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Re: Using donor advised fund to diversify stock with large capital gains

Post by FIREchief » Thu Jun 14, 2018 2:37 pm

Bingo. It's the tax law change. It used to be true in my situation that I benefited from making annual contributions, because my other itemized deductions met or came close to the standard deduction. That is no longer true under the new law, so I made a significant donation of appreciated funds to my DAF last December and may never contribute again. Once I reach 70, QCDs will be more beneficial than deductible DAF contributions.
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FIREchief
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Re: Using donor advised fund to diversify stock with large capital gains

Post by FIREchief » Thu Jun 14, 2018 2:44 pm

jebmke wrote:
Thu Jun 14, 2018 10:06 am
FIREchief wrote:
Wed Jun 13, 2018 11:00 pm
NoHeat wrote:
Wed Jun 13, 2018 8:52 pm
Secondly, it can easily accept not just cash but also appreciated securities.
This is something I would like to hear more about. I've often thought that if I inherited a problem asset (like 50% of a parent's house), that I might see if I could just "donate" my interest to a DAF and let their lawyers negotiate/finess/torture the other heirs into selling. The DAF would have nothing to lose. Any good stories like this?
Normally, an inherited asset has a stepped up basis so you would be donating a non-appreciated asset. This is probably sub-optimal from a tax perspective if you have other assets with unrealized long term capital gains.

I also question whether a DAF would accept a share of an asset.

Yes. Sub-optimal from a tax standpoint but perhaps optimal from an overall perspective. We've had threads about the example I provided. One I remember in particular had an heir inheriting 25% of a house worth about $200K. Other heirs refused to sell. Some were recommending just giving up the $50K interest rather than hire (and pay) lawyers to sue other siblings and ultimately wind up with a lot of grief and a lot less than $50K. In that situation, if a DAF would accept the 25% ownership interest, the beneficiary would be able to claim a $50K tax deduction (I think) and move on with life. The DAF could spend $25K on legal fees and still recoup some charitable benefit in the end. Just hypothetical, but an interesting discussion.

Also, if I have "excess" appreciated assets, my tax favorable options (beyond DAF donation) also include just keeping them until death and benefiting my heirs through the step up of basis. The same capital gains taxes are avoided either way.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Using donor advised fund to diversify stock with large capital gains

Post by jebmke » Thu Jun 14, 2018 2:47 pm

Yes, dying is typically one of the most tax-efficient ways to distribute assets.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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FIREchief
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Re: Using donor advised fund to diversify stock with large capital gains

Post by FIREchief » Thu Jun 14, 2018 3:24 pm

jebmke wrote:
Thu Jun 14, 2018 2:47 pm
Yes, dying is typically one of the most tax-efficient ways to distribute assets.
LOL. Yes, unless you live in a state with a punitive estate tax and/or the fed reverses course in the future.

If a person is married and lives in a community property state, they get the step up if their spouse dies.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

jebmke
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Re: Using donor advised fund to diversify stock with large capital gains

Post by jebmke » Thu Jun 14, 2018 3:57 pm

Indeed. My state has an estate tax that is uncoupled from the federal limits; there is also an inheritance tax if the recipient (non-charity) is not a spouse, child or sibling.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: Using donor advised fund to diversify stock with large capital gains

Post by inbox788 » Thu Jun 14, 2018 7:09 pm

tj-longterm wrote:
Wed Jun 13, 2018 12:47 pm
I'm curious what people think about this strategy. Given the risk of a single stock, it seems preferable to holding this individiual stock for years and donating small chunks. And if we do find a worthy cause to donate all of it at once, we can still do that with the donor advised fund. Are there any downsides to consider? The fees do not seem too high.
Excellent suggestion. Do it.

The only downside is the opportunity cost on the tax deduction assuming the stock and the market both keep going up and you have similar tax deduction in future. Still, the diversification from single stock in taxable to diversified low cost mutual fund in DAF is totally worth it.

Well, one other small downside is a likely slightly higher ER.
GerryL wrote:
Wed Jun 13, 2018 3:26 pm
My plan is to possibly bunch the DAF contributions every two years in order to itemize deductions every other year.
Yes, that's my plan as well. OP, are you itemizing for sure next year or will it depend on your charitable deductions? If you're not itemizing, there's also that gap where you're not benefiting from the charitable deduction up to the standard deduction.
FIREchief wrote:
Thu Jun 14, 2018 2:37 pm
Bingo. It's the tax law change. It used to be true in my situation that I benefited from making annual contributions, because my other itemized deductions met or came close to the standard deduction. That is no longer true under the new law, so I made a significant donation of appreciated funds to my DAF last December and may never contribute again. Once I reach 70, QCDs will be more beneficial than deductible DAF contributions.
Ha. I advanced my planned 2018 DAF donation to last December too. In retrospect, should have done more. But at least I'm a little more ahead in my committed giving and can wait a few years to see if the situations changes (both personal as well as policy). Don't plan to make any more contributions to DAF in 2018 or 2019 for now.

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Re: Using donor advised fund to diversify stock with large capital gains

Post by Artsdoctor » Thu Jun 14, 2018 10:07 pm

FIREchief wrote:
Thu Jun 14, 2018 3:24 pm
jebmke wrote:
Thu Jun 14, 2018 2:47 pm
Yes, dying is typically one of the most tax-efficient ways to distribute assets.
LOL. Yes, unless you live in a state with a punitive estate tax and/or the fed reverses course in the future.

If a person is married and lives in a community property state, they get the step up if their spouse dies.
Yes! For all of the doom-and-gloom that California gets from a tax perspective, all assets held jointly gets the step-up when one spouse dies and the estate tax is zero unless you've exceeded the federal maximum.

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dm200
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Re: Using donor advised fund to diversify stock with large capital gains

Post by dm200 » Fri Jun 15, 2018 9:15 am

If you and your family/heirs are regular donors to various charities, you can designate successors to handle your DAF long after you are gone. You get the tax breaks now, and they can continue supporting various charities for a long time.

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TheGreyingDuke
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Re: Using donor advised fund to diversify stock with large capital gains

Post by TheGreyingDuke » Fri Jun 15, 2018 7:57 pm

Artsdoctor wrote:
Thu Jun 14, 2018 8:42 am
T Consequently, I periodically transfer chunks of assets from the Vanguard DAF to the Fidelity DAF in order to make use of items 2 and 3 when I have to. It is a significant flaw in Vanguard's system which will not allow you to easily make a grant recommendation on behalf of someone, so I cannot recommend it as your only DAF.
You have me convinced to move the DAF from Vanguard to Fidelity, the $500 minimum has "cost" me over the years. I looked at the Fidelity DAF site and couldn't see how to do a transfer, could I transfer the entire amount in one transaction??
"Every time I see an adult on a bicycle, I no longer despair for the future of the human race." H.G. Wells

47Percent
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Re: Using donor advised fund to diversify stock with large capital gains

Post by 47Percent » Fri Jun 15, 2018 10:43 pm

"I looked at the Fidelity DAF site and couldn't see how to do a transfer, could I transfer the entire amount in one transaction??"


Isn't your DAF at Fidelity just like any other charity? Just give instructions to Vanguard DAF to donate it to Fidelity Charitable, and mention your DAF account number as additional information. Of course, you should check with Fidelity just to make sure.

You can transfer the entire amount in one transaction, provided it is more than $500, I gather!

venkman
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Re: Using donor advised fund to diversify stock with large capital gains

Post by venkman » Sat Jun 16, 2018 9:14 pm

tj-longterm wrote:
Wed Jun 13, 2018 12:47 pm
I'm curious what people think about this strategy. Given the risk of a single stock, it seems preferable to holding this individiual stock for years and donating small chunks. And if we do find a worthy cause to donate all of it at once, we can still do that with the donor advised fund. Are there any downsides to consider? The fees do not seem too high.
It's a good plan, but know that deductions for charitable contributions of appreciated stock are limited to a maximum of 30% of your AGI in a given tax year. Any amount above that can be carried over for 5 years. I just ran into this issue while making a DAF plan for a relative. Not a deal breaker by any means, but definitely something to factor in.

47Percent
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Re: Using donor advised fund to diversify stock with large capital gains

Post by 47Percent » Sat Jun 16, 2018 10:19 pm

venkman wrote:
Sat Jun 16, 2018 9:14 pm
tj-longterm wrote:
Wed Jun 13, 2018 12:47 pm
I'm curious what people think about this strategy. Given the risk of a single stock, it seems preferable to holding this individiual stock for years and donating small chunks. And if we do find a worthy cause to donate all of it at once, we can still do that with the donor advised fund. Are there any downsides to consider? The fees do not seem too high.
It's a good plan, but know that deductions for charitable contributions of appreciated stock are limited to a maximum of 30% of your AGI in a given tax year. Any amount above that can be carried over for 5 years. I just ran into this issue while making a DAF plan for a relative. Not a deal breaker by any means, but definitely something to factor in.
The limit seems to be 20% of AGI and not 30%

AlphaLess
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Re: Using donor advised fund to diversify stock with large capital gains

Post by AlphaLess » Sat Jun 16, 2018 10:26 pm

tj-longterm wrote:
Wed Jun 13, 2018 12:47 pm
Our accountant suggested that if we don't want to donate it all at once, we should consider putting it in a donor advised fund.
The only thing better than that plan would have been to do it prior to Dec.31.2017, assuming you were and are in the highest federal tax bracket.

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FIREchief
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Re: Using donor advised fund to diversify stock with large capital gains

Post by FIREchief » Sat Jun 16, 2018 11:48 pm

AlphaLess wrote:
Sat Jun 16, 2018 10:26 pm
tj-longterm wrote:
Wed Jun 13, 2018 12:47 pm
Our accountant suggested that if we don't want to donate it all at once, we should consider putting it in a donor advised fund.
The only thing better than that plan would have been to do it prior to Dec.31.2017, assuming you were and are in the highest federal tax bracket.
For many, it would have been a good plan regardless of tax bracket.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Using donor advised fund to diversify stock with large capital gains

Post by AlphaLess » Sun Jun 17, 2018 2:24 pm

FIREchief wrote:
Sat Jun 16, 2018 11:48 pm
AlphaLess wrote:
Sat Jun 16, 2018 10:26 pm
tj-longterm wrote:
Wed Jun 13, 2018 12:47 pm
Our accountant suggested that if we don't want to donate it all at once, we should consider putting it in a donor advised fund.
The only thing better than that plan would have been to do it prior to Dec.31.2017, assuming you were and are in the highest federal tax bracket.
For many, it would have been a good plan regardless of tax bracket.
True dat!

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Artsdoctor
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Re: Using donor advised fund to diversify stock with large capital gains

Post by Artsdoctor » Sun Jun 17, 2018 5:48 pm

TheGreyingDuke wrote:
Fri Jun 15, 2018 7:57 pm
Artsdoctor wrote:
Thu Jun 14, 2018 8:42 am
T Consequently, I periodically transfer chunks of assets from the Vanguard DAF to the Fidelity DAF in order to make use of items 2 and 3 when I have to. It is a significant flaw in Vanguard's system which will not allow you to easily make a grant recommendation on behalf of someone, so I cannot recommend it as your only DAF.
You have me convinced to move the DAF from Vanguard to Fidelity, the $500 minimum has "cost" me over the years. I looked at the Fidelity DAF site and couldn't see how to do a transfer, could I transfer the entire amount in one transaction??
I'm not sure that you can transfer the whole amount with an online order although I could be wrong. I usually make grant recommendations in dollar amounts but I believe you can also make grant recommendation in percentage amounts as well. Consequently, you can probably transfer 100% of your holdings from your Vanguard DAF to the Fidelity DAF.

I would call Vanguard Charitable and let them know what you're doing and why. If they hear it enough, they might modify their platform. There's no reason why they can't allow people to make recommendations in honor of someone (or in memory of someone).

Make sure you do what you want to do by next February because Vanguard will assess fees in March if your balance drops below $15,000, I believe.

venkman
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Re: Using donor advised fund to diversify stock with large capital gains

Post by venkman » Mon Jun 18, 2018 12:44 am

47Percent wrote:
Sat Jun 16, 2018 10:19 pm
venkman wrote:
Sat Jun 16, 2018 9:14 pm
It's a good plan, but know that deductions for charitable contributions of appreciated stock are limited to a maximum of 30% of your AGI in a given tax year. Any amount above that can be carried over for 5 years. I just ran into this issue while making a DAF plan for a relative. Not a deal breaker by any means, but definitely something to factor in.
The limit seems to be 20% of AGI and not 30%
I think it depends on the charity. If it's a charity to which you could normally donate and deduct up to 50% of your AGI in cash, you can donate up to 30% of AGI in appreciated assets. Apparently there are some charities that you can only deduct up to 30% of AGI for cash donations, and for those charities you can only deduct up to 20% of AGI for appreciated assets.
(Disclaimer: I am not a licensed tax professional, but I did research this on the internet for nearly 10 minutes, so...) :happy

There may be more limitations if your income is above a certain level, but I don't know for sure.

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Re: Using donor advised fund to diversify stock with large capital gains

Post by latesaver » Fri Aug 24, 2018 1:31 pm

FIREchief wrote:
Thu Jun 14, 2018 2:37 pm
Bingo. It's the tax law change. It used to be true in my situation that I benefited from making annual contributions, because my other itemized deductions met or came close to the standard deduction. That is no longer true under the new law, so I made a significant donation of appreciated funds to my DAF last December and may never contribute again. Once I reach 70, QCDs will be more beneficial than deductible DAF contributions.
don't many of the DAFs require subsequent contributions? this DAF is new, and interesting, to me, but i wouldn't want to sign up for something that requires me to fund a minimum amount each and every year.

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FIREchief
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Re: Using donor advised fund to diversify stock with large capital gains

Post by FIREchief » Fri Aug 24, 2018 1:55 pm

latesaver wrote:
Fri Aug 24, 2018 1:31 pm
FIREchief wrote:
Thu Jun 14, 2018 2:37 pm
Bingo. It's the tax law change. It used to be true in my situation that I benefited from making annual contributions, because my other itemized deductions met or came close to the standard deduction. That is no longer true under the new law, so I made a significant donation of appreciated funds to my DAF last December and may never contribute again. Once I reach 70, QCDs will be more beneficial than deductible DAF contributions.
don't many of the DAFs require subsequent contributions? this DAF is new, and interesting, to me, but i wouldn't want to sign up for something that requires me to fund a minimum amount each and every year.
I've never heard of such a thing. I believe that they have some requirement for a minimal level of activity (like making at least one grant per year), but otherwise you never have to put in another penny.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

47Percent
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Re: Using donor advised fund to diversify stock with large capital gains

Post by 47Percent » Fri Aug 24, 2018 2:41 pm

FIREchief wrote:
Fri Aug 24, 2018 1:55 pm
latesaver wrote:
Fri Aug 24, 2018 1:31 pm
FIREchief wrote:
Thu Jun 14, 2018 2:37 pm
Bingo. It's the tax law change. It used to be true in my situation that I benefited from making annual contributions, because my other itemized deductions met or came close to the standard deduction. That is no longer true under the new law, so I made a significant donation of appreciated funds to my DAF last December and may never contribute again. Once I reach 70, QCDs will be more beneficial than deductible DAF contributions.
don't many of the DAFs require subsequent contributions? this DAF is new, and interesting, to me, but i wouldn't want to sign up for something that requires me to fund a minimum amount each and every year.
I've never heard of such a thing. I believe that they have some requirement for a minimal level of activity (like making at least one grant per year), but otherwise you never have to put in another penny.
some of these may be just confusing the requirement of charitable foundations with DAF's.

DAF, as far as I know has the following:
1) minimum beginning balance requirement.
2) Typically it also has minimums for additions and distributions (only if you want to add or distribute)
3) And it has an annual fee as a small percentage of total amount -- with a minimum of usually $100.

All the above are of course, vary from provider to provider.

The following is from my memory from reading about DAF's a few years ago. I don't have the source/details now.

The DAF provider has some aggregate requirement for minimum distribution as a percentage of their DAF holdings. But they do not force any minimum distribution on individuals because they are able to satisfy the aggregate requirement as on the average it is never an issue. But they usually have some fine print to protect themselves for inordinately long holding periods without any distributions.

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