Great Opportunity to Use a DAF

What is a DAF you ask?

Donor Advised Funds, or DAFs, have been around for a while. The first ones were set up in the 1930s and Congress gave them formal standing in 1969. And they may be one of the most advantageous tax strategies you’ve never heard of.

The structure is pretty simple. You set up an account with a qualified record-keeper and you fund the account with cash or securities. Like regular donations to charity, you get to take a tax deduction for the amount contributed. Then, once the account is funded, you make disbursements over time out of the fund to federally recognized charities. You can research which charities spend their money wisely on Charity Navigator.

And it's that ability, the ability to disburse funds over time and spontaneously, that really differentiate DAFs from other forms of giving.

This has been a difficult hurricane season. Add in the recent earthquakes and other global calamities and there is a great need for donations both here in the U.S. and internationally. This is exactly the situation where DAFs can play a critical role in getting help to those who need it.

Imagine you got a big bonus two years ago and wanted to donate a large sum of money to those in need. You could have made one big gift to an organization like the Red Cross two years ago, but if you had a DAF you could make that one big gift into a DAF and then over time, give proportionally out of your fund as the need arises. You could have given a portion to an organization helping Harvey victims, then another portion to organization helping with the aftermath of hurricanes Irma, Marie and Jose and then another portion to the victims of the earthquake in Mexico, and then maybe some to your local church. You decide how and when to give.

Here's an simple example of how a DAF can work and be beneficial both from a tax and giving perspective:

Say you bought 400 shares of a tech stock for $10 a share and it ends up going way up in value to $50 a share and you determine that it’s time to sell. Guess who’s coming for capital gains taxes? You know who. So one option is to gift some or all of the appreciated shares directly into the DAF. When you do that, you completely avoid the capital gains tax and you now have the ability to invest the money in a diversified portfolio, allow it to grow and disburse it over time. In this case let’s say you sold ½ for $10,000 and gave the other $10,000 to the DAF. Great, now you’ve got your next several years of giving all lined up and you only paid $1,600 in capital gains taxes vs. $3,200.

Everyone has a unique financial and charitable giving strategy and these accounts aren’t for everyone. Furthermore, there are state tax laws and restrictions that may make them inappropriate for your situation, so best to discuss your specific tax situation with your tax advisor or accountant, but if you would like to learn more about DAF accounts or the investment aspects of the DAF account, we’d be happy to help. 603-438-1874 or Schedule a time to chat that's convenient.

PLEASE REMEMBER:

- INVESTING AND INVESTMENT MANAGEMENT INVOLVES RISK, INCLUDING THE LOSS OF YOUR INITIAL INVESTMENT OR ANY INVESTMENT GAINS.

- PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

- THIS GENERIC INFORMATION IS PROVIDED FOR EDUCATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION FOR ANY INDIVIDUAL TO TAKE A SPECIFIC ACTION.

- PLEASE INVEST PRUDENTLY AND SEEK PROFESSIONAL HELP FROM A FINANCIAL ADVISOR, INVESTMENT MANAGER, ACCOUNTANT, LAWYER OR OTHER PROFESSIONAL ON MATTERS THAT YOU ARE UNSURE OF OR THAT ARE UNIQUE TO YOUR PERSONAL CIRCUMSTANCES.

- FINANCIAL PLANNING AND INVESTMENT MANAGEMENT SERVICES PROVIDED BY J. BRADFORD INVESTMENT MANAGEMENT, NASHUA NH.

What do Prince and 64% of Americans Have in Common?

            While Prince is one of the most famous performers of our time and was loved and adored by millions of fans, it appears that he made one mistake that, for his family, is going to last well beyond his musical legacy … he failed to prepare a will. Despite having hundreds of millions of dollars and some of the best attorneys and advisors at his disposal, he didn’t take even the most basic of steps to prepare for his death. As a result, instead of mourning Prince’s loss, his brothers and sisters are spending their days arguing and fighting in court at probate hearings about what will happen to Prince’s estate.  

            Although Prince’s musical talent was one-of-a-kind, his failure to adequately prepare for his passing is unfortunately all too common. According to a recent Harris Poll, 64% of Americans don’t have a will. While none of us want to think about our own mortality, the people who truly suffer if we don’t take any steps to prepare for our ultimate passing are those that were most important to us during our lives. A person who dies without a will is said to have died “intestate”. If a person dies intestate, the determination of who will inherit his or her assets and make decisions with these assets after he or she dies is based on the laws of the particular state where that person lived at the time of his or her death.   

            By taking even the simplest measures, we can all ensure that the people we care about the most during our lives are given clear guidance and direction upon our death about what to do with what we owned and cherished the most. In addition to making sure that the physical assets we own at our death are given to the people we choose, preparing a will is another gift we can give to our loved ones so they don’t have to wonder about our true wishes and wait for a court to tell them what happens with our assets. This goes for something as small as who we might want to receive our baseball card collection to something as large the value of our home or the money in our savings account. Also, most importantly for all of us with young children, preparing a will allows us to direct who we want to be guardians of our children if something happens to us. Without this formal appointment, the state laws and the court will be deciding who will take care of our children.

            While we can’t all be world famous performers and we don’t all have a net worth around $300 million, we all have families, friends and loved ones who we care for and who care about us. While carefully considering and preparing a detailed estate plan that takes into account tax savings structures and directions for managing and distributing a person’s assets is crucial for anyone with significant assets, as described above, preparing a will isn’t reserved for the wealthy and is extremely important for all of us to consider.  Instead of letting the state decide who will inherit our assets and who will be guardians of our children, we all owe it to the important people in our lives to make those decisions in advance.

            Even though we all like to live “in the moment” and not think about what might happen in the future, Prince’s death has taught has that, while we can try to act like it’s always 1999, we need to first make sure we’ve put in writing what happens with our little red corvette.

            Ken Kams is a general corporate and estate planning attorney based in Dedham, Massachusetts. He can be reached at ken@kamslawgroup.com.

PLEASE REMEMBER:

- Investing and investment management involves risk, including the loss of your initial investment or any investment gains.

- Past performance is no guarantee of future results.

- This generic information is provided for educational purposes only and should not be construed as a recommendation for any individual to take a specific action.

- Please invest prudently and seek professional help from a financial advisor, investment manager, accountant, lawyer or other professional on matters that you are unsure of or that are unique to your personal circumstances.

- Financial Advisor and Investment Management Services provided by J. Bradford Investment Management, Nashua NH.