Donor advised fund questions

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phatkev
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Donor advised fund questions

Post by phatkev »

I'm interested in creating a donor advised fund for the common charities I give each year which total around 10-12k. After the tax laws changed and the standard deduction went up to 24k, my charitable donations had no effect on my taxes. I'm planning to make a large donation to the DAF every few years so I can get the large donation deducted from my taxes. Also, I'd like to donate my appreciated capital gains to it to avoid paying capital gains taxes. My questions are:

1. Most of my taxable accounts are with Vanguard, but I plan to open a DAF with Fidelity for the lower minimum donations allowed ($50 Fidelity vs $500 Vanguard). I assume that I can still donate my sold appreciated capital gains from my Vanguard account to a Fidelity DAF, right? It's probably not as seamless as when using the same brokerage account, but still doable?

2. My asset beneficiaries all go to my revocable living trust. Does my RLT play any role with this since once I donate to the newly formed charity that is my DAF, it's irrevocable and has nothing to do with my personal assets? If I die, what happens to the DAF? Are there beneficiaries listed for DAFs?

Thanks for the help.
DinkinFlicka
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Re: Donor advised fund questions

Post by DinkinFlicka »

I have my taxable account at Vanguard and a DAF at Fidelity for the reason you mentioned. I've only transferred once, but the process was pretty simple. I just sent a form to Fidelity that listed the lots I wanted to donate and they took care of the rest. I should note that my transfer was pretty simple as the lots that had appreciated the most were the oldest. I don't know if there's a higher chance of something messing up with more specific requests.

You can set up beneficiaries to a Fidelity DAF, but I believe that just designates who can continue to make grant recommendations after you die.
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Peter Foley
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Re: Donor advised fund questions

Post by Peter Foley »

OP wrote:
I assume that I can still donate my sold appreciated capital gains from my Vanguard account to a Fidelity DAF, right?
This is not accurate as stated. You identify the assets you want to transfer before they are sold. For example, 100 shares of my S%P 500 mutual fund, or 50 shares of Amazon stock. You are entitled for a deduction on your tax return based on the values of the shares when they were gifted to the account not what you paid for them originally. The value will include your original cost basis plus any capital gains.

Vanguard, Fidelity, and Schwab all offer donor advised funds. The initial minimum contribution amount and subsequent contribution amount minimums differ from company to company.
QBoy
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Re: Donor advised fund questions

Post by QBoy »

DinkinFlicka wrote: Sun Jun 20, 2021 10:37 pm I have my taxable account at Vanguard and a DAF at Fidelity for the reason you mentioned. I've only transferred once, but the process was pretty simple. I just sent a form to Fidelity that listed the lots I wanted to donate and they took care of the rest. I should note that my transfer was pretty simple as the lots that had appreciated the most were the oldest. I don't know if there's a higher chance of something messing up with more specific requests.

You can set up beneficiaries to a Fidelity DAF, but I believe that just designates who can continue to make grant recommendations after you die.
This is my experience as well. I have had no problem donating assets at Vanguard to my Fidelity DAF. I don't think OP's revocable trust has any impact.

On the "sold capital gains," I presume OP means "OLD capital gains." If so, the statement is correct.
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Tubes
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Re: Donor advised fund questions

Post by Tubes »

1. You can do it as others outlined. It is just a bit easier to go VG to VG Charitable. I will say that the $500 minimum for VG Charitable has become less of a problem in my mind as time went on. I've come to agree with the philosophy of giving enough to make an impact.

2. Once you donate to your DAF, it is done and officially out of your hands with regard to "inheritance" or trust documents and directions. However, both VG and F Charitable offer you the chance to designate successor advisors. You do this with the DAF paperwork and not your estate documents. Your successor advisors (anyone you choose) will have the ability to direct the funds left over in the DAF account. This ability can be quite a gift to pass on after your death.

Also, within the DAF you can create a succession plan. Before you die, you can set up a group of charities that your balance gets designated to. With VG Charitable, you have the ability to set up a kind of endowment of sorts (I think Fidelity does this too, but not sure). Basically, you can set up something like this: "Give 1% to charity A, 2% to charity B, 1% to C, 3% to D, 1% to E, until funds are depleted." VGC requires at least 5% in total per year to be distributed. If your choice of investments does well, you can see this could last for a long time. It is all automatic if you don't have succession advisors.

Finally, in your will or trust you can designate your DAF as a beneficiary. So instead of baking specific charities into your will or trust, you can designate the DAF. Then your succession plan, which is easier to change, will kick in.
RichK
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Re: Donor advised fund questions

Post by RichK »

You will enjoy the convenience of a DAF; contributions can be done easily on line. I made a large contribution to our Schwab DAF in 2017 prior to the TCJA taking effect and with the market run-up, it is truly the gift that keeps on giving. Bundling donations every few years to get over the Standard Deduction hurdle as you mentioned is the right strategy.

Once you reach the stage where RMD's are required, using Qualified Charitable Distributions is a much better deal from a tax standpoint. First, you get to take the Standard Deduction. Second, the QCD's come "off the top" which will reduce federal and potentially state tax (many of which are based on AGI). The reduction in AGI also could affect your IRMAA bracket.

Since I'm in RMD territory, I'm winding down our DAF and phasing in QCD's. Unfortunately, the QCD process itself at Vanguard is much more awkward than the DAF process at Schwab. Vanguard is "hands-off" in terms of vetting charities so you don't get a nice listing of the charities like you do with DAF's. You can write checks on your account, but for a minimum of $250; for smaller donations, you have to request a check from Vanguard.
nolesrule
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Re: Donor advised fund questions

Post by nolesrule »

We did stock transfer from Vanguard to our Fidelity DAF in December of 2020 for the first time. Prior to that we had donated cash. It was really easy. You just put in that you want to make a gift on Vanguard's site, answer the questions about which shares you want to donate and use the information found on this Fidelity DAF webpage to designate where the stock is going:

https://www.fidelitycharitable.org/faqs ... tions.html

A PDF form is generated to be e-signed. If there are joint holders of the account, then they will both need to sign, so make sure both have logins at Vanguard first.

If I recall it took less than a week from filling out the form to the money being in the DAF. No need to initiate from the Fidelity DAF side.
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phatkev
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Re: Donor advised fund questions

Post by phatkev »

Thanks for all the responses. It sounds like what I was thinking was correct so I appreciate the assistance. When I was talking about capital gains, I meant that if I make any sales of stocks or mutual funds in my taxable account, any realized capital gains would be donated to my DAF to avoid paying the capital gains taxes. Thanks again.
Gill
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Re: Donor advised fund questions

Post by Gill »

phatkev wrote: Tue Jun 22, 2021 5:40 pm Thanks for all the responses. It sounds like what I was thinking was correct so I appreciate the assistance. When I was talking about capital gains, I meant that if I make any sales of stocks or mutual funds in my taxable account, any realized capital gains would be donated to my DAF to avoid paying the capital gains taxes. Thanks again.
You don’t sell the shares or it will be taxable to you. You donate the shares in kind.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
msh01
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Re: Donor advised fund questions

Post by msh01 »

One thing to keep in mind. Transfering shares from Vanguard to Fidelity will require more time than vanguard to vanguard.

Usually not a problem -- as long as you plan ahead. But if you wait until the end of the year -- when they might be busier -- you might not have enough time to make the donation effective for the current tax year.

I still have a fidelity DAF, since to me the pro's (low limits flexibility) outweigh this con.
nolesrule
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Re: Donor advised fund questions

Post by nolesrule »

phatkev wrote: Tue Jun 22, 2021 5:40 pm Thanks for all the responses. It sounds like what I was thinking was correct so I appreciate the assistance. When I was talking about capital gains, I meant that if I make any sales of stocks or mutual funds in my taxable account, any realized capital gains would be donated to my DAF to avoid paying the capital gains taxes. Thanks again.
If you sell the shares and you donate the cash from the capital gains, you'll pay capital gains taxes on the gains and would only be able to deduct the amount you donate if you itemize.

By donating the appreciated shares in kind, there are no capital gains to report so none to be paid, because you have given the shares away. If you itemize you can deduct the value of the shares as long as they have been held long term.
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Wiggums
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Re: Donor advised fund questions

Post by Wiggums »

We have a DAF with Fidelity along with half our assets. As others have said, you can have the shares transferred from Vanguard.
"I started with nothing and I still have most of it left."
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Re: Donor advised fund questions

Post by placeholder »

Don't do anything until you understand this because what you're saying is wrong regarding the capital gains.
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Stinky
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Re: Donor advised fund questions

Post by Stinky »

phatkev wrote: Tue Jun 22, 2021 5:40 pm When I was talking about capital gains, I meant that if I make any sales of stocks or mutual funds in my taxable account, any realized capital gains would be donated to my DAF to avoid paying the capital gains taxes.
We’re just making sure that you realize that this is an incorrect statement.

When using a DAF, You don’t sell shares in your taxable account. Rather, you donate the shares to the DAF.

Please post back if more explanation is needed.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
BrokerageZelda
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Re: Donor advised fund questions

Post by BrokerageZelda »

If you sell your own appreciated shares, you pay capital gains taxes at your personal rate on the appreciation above the original purchase price.

If you transfer your appreciated shares to your friend, you don't pay capital gains taxes because you didn't sell, but your friend will pay capital gains taxes at their personal rate on the appreciation above your original purchase price if they sell it.

If you transfer your appreciated shares to a nonprofit charity or DAF, you don't pay capital gains taxes because you didn't sell, and the nonprofit will pay no capital gains taxes when they sell it because nonprofits have a 0% capital gains tax rate. So the portion you would have normally paid to the IRS/state in capital gains taxes becomes additional money in the nonprofit's pocket.
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