Donor Advised Funds: Give More, Save More

Shawn (00:00): That’s something that long after you’ve gone home to be with the Lord, this is something that can continue to expand God’s kingdom, which is awesome. Welcome back to another episode of Christian Financial Perspectives. My name’s Shawn Peters. I’m joined today by Bob Barber and we’re going to be covering donor-advised funds, which if you did watch or listen to our last episode, we did mention this briefly. So as promised, here is that follow-up episode. Bob, if it’s okay, I’ll go ahead and start with our scripture and then we’ll get going. Bob (00:35): I think it’s a good one when we’re talking about giving because that’s what we’re talking about, and I think this is going to come out – – we’re recording, but this is going to come out I think on December 23rd. Don’t tell anybody that, right? Shawn (00:47): We record ahead of time? You’re ruining the movie magic. I think everybody knows that. Alright, Acts 20:35, “In everything I did, I showed you that by this kind of hard work, we must help the weak, remembering the words the Lord Jesus himself said, ‘It is more blessed to give than to receive.’” Bob (01:03): So today we’re going to be talking about one of my favorite financial vehicles per se, and that’s the donor advised fund and that’s because I’ve been using it for years. Our last episode, like we said, we talked a lot about year end tax planning. This is something I always, at the end of the year, put a lot of money in and I basically… Shawn (01:24): And you figure it out later of where you’re going to send the money to. Bob (01:26): Exactly. It’s kind of pre giving is what I do and I use my donor advised fund. Shawn (01:30): So this is your prepaid gift card for donating to charity. Bob (01:34): You think about it. That’s a good way of saying it – it’s your prepaid gift card. Also, Shawn, it takes pressure off of me to go find charities I got to give to real quick. I’ve got plenty of time to do it and we give to our church out of this now and we give to other causes. Shawn (01:51): Hey, there you go. There’s another advantage. You’re not overloading the administration of the different charities at the end of the year. Bob (01:57): They don’t mind that overloading sometimes. So the question is how would you like a charitable investment account? That’s what this is by sponsoring organization that could allow you to make tax deductible contributions. Now you’re going to get that now and if you do the donor advised fund before the end of the year, you’ll get the deduction now, but then you can make recommended grants out of that donor advised fund… Shawn (02:21): When you’re ready. Bob (02:22): When you’re ready. And that can be next year, it could be five years from now. Shawn (02:27): So you could donate by the end of this year, by the end of next year. You could do it multiple years in a row and then allow those assets to also grow now that they’ve been contributed. They’re basically out of your control, out of your hands to use for personal use and then okay, great. Well it’s grown to where I want to start giving some of this money out to my church and other charities. Bob (02:46): And most of the donor advised funds have some good investment choices to pick from. Shawn (02:50): Well as I think we’ve already covered, so there is such a thing that accomplishes this very idea called a donor advised fund. So we’ve got seven advantages that we’re going to cover of a donor advised fund. Number one, receive a significant tax deduction now or this tax year but give to the charities of your choice later. Cash contributions to a donor-advised fund or deductible up to 60% of your adjusted gross income and up to 30% for non-cash donations. So stocks… Bob (03:23): So we’ll explain that here in a minute. Yeah. Shawn (03:25): Vehicles, things like that. Bob (03:25): We’re going to go into all the non-cash donations because that’s what I do. Usually I do an appreciated stock or an ETF that I give to the donor advised fund and then they sell it and there’s no tax on it. Okay. Shawn (03:38): What’s interesting about that too, Bob, I believe we’ve covered this before in one or two episodes, but the percentage of money or the percentage of charitable donations that come from cash is something like what, 70-80% versus assets, so like an appreciated stock, but yet when you look at how much cash do people have or just from income versus the value of these assets, there’s a huge difference. Bob (04:04): Yeah, it’s a pie chart and yeah, non-cash assets are 90% of what everybody has. So the non-cash assets, what makes a lot of sense and you can use these donor-advised funds like that and that’s why I like ’em a lot. Okay. Shawn (04:18): So number two, get the use of a tax advantaged financial account that allows your donations to grow and gives you all the time you need to decide when to make donations to your favorite charities from the donor-advised fund. Bob (04:31): And you can grow those donations through managed accounts, which is nice. Yeah, I mean they’ll give you everything from conservative to balance to growth to aggressive growth. You’ve got different portfolios that you can pick from in many of these donor advised funds, one that we use is a Christian based one and then while you’re thinking about who you want to make that grant to, this money can be growing. Of course if it’s a bad market it could be going down too, but this is for the long-term; donor advised funds are for the long-term. Shawn (05:00): This could even be part of your long-term estate planning. So instead of whenever you go home to be with the Lord and you don’t need the money anymore that you have money going to charities. Bob (05:11): We’re going to mention that one. That was the one you’re getting ahead of me here. Shawn (05:13): I’m sorry. I’m just getting excited. Bob (05:14): Okay, number four and this one I really like is is that you can streamline all your giving, we give to multiple charities, but instead of giving… Shawn (05:24): Directly to multiple charities. Bob (05:25): Directly to multiple charities, we give to the donor advised fund and then the donor advised fund, we make grants from the donor advised funds to the multiple charities so you don’t have all the paperwork that you’re having to deal with. Shawn (05:36): So there you go. There’s a simplification of your giving charity. Bob (05:40): That’s our number five advantage. You do away with all that ongoing paperwork that you have to deal with from your favorite charities, because you’re just going to have to deal with paperwork for one. That’s the donor advised fund. Shawn (05:50): Yeah. Okay. So number four, streamline all the giving from a centralized account. Number five that you have much less ongoing paperwork to be able to give those donations out. Number six can be an excellent deferred, tax advantaged, giving source for the beneficiary of IRAs, annuities, and an estate plan your favorite charities after you’re gone. Bob (06:09): I got ’em all. Shawn (06:09): Like I accidentally mentioned before. Bob (06:10): You realize, and you know my estate plans, so I’m doing all this. I mean my IRAs are going to go to my donor-advised fund at my death. Shawn (06:19): And if I remember correctly, you have it divided, so got your three daughters and then you have the donor-advised fund as basically like a fourth child for kind of how you add that up. Bob (06:29): Well actually, okay, the way we’re doing this is the way that we’re doing our estate now is the IRA money is what’s going to go to the donor advised fund. Shawn (06:36): Got it. Okay. Bob (06:37): Because that makes the most sense, because they’d have to pay tax on all that. Shawn (06:40): Right. Bob (06:41): So you think about it for anybody, I mean we just had an affluent client in last week, and they have 2 million in their IRAs. They’re going to give all that to the donor advised fund. Shawn (06:56): Oh, okay. Then that means that 2 million is really more like what – depending on their tax bracket and everything. It could be more like two and a half million or more. Bob (07:03): Well yeah, well you think about it because after tax it would be 2, but all 2 million is going and this person set up the donor advised fund as a family giving fund. Shawn (07:13): Oh cool. Bob (07:14): Because remember donor advised fund is not individually, it can be for your family. So anybody in this family can contribute to this fund. And then we’re going to help advise the fund later on what charities to give to and he’s instructed me what charities does he want me to give to. Shawn (07:31): What charities are important to them. Bob (07:32): Right. Shawn (07:32): That’s Awesome. Bob (07:33): That’s right. Shawn (07:33): Which goes into the number seven, which could be a family giving fund. So it’s not just an individual like yourself, but it could be your kids or the grandkids that hey, this is the family giving fund that we’ve set up that we can contribute to and continue to expand the kingdom. Bob (07:49): Our family giving fund is getting up so much in it now, Shawn. I think it would be nice to have family meetings and this is emphasized to where, hey, this money is going to go for charity. Can we decide as a family where this is going to go? Shawn (08:03): That’s awesome. Bob (08:04): And there are Christian-based donor advised funds that by their statement of faith you can’t give to a charity that’s going to be giving money to this is a Christian program, it’s going to be giving money to causes that violate Christian principles. Yeah. Shawn (08:20): So for instance, they’re not going to let you give to Planned Parenthood. Bob (08:22): Right. Shawn (08:24): But Crisis Pregnancy Center would be like an alternative. Bob (08:28): I know that my daughter, your wife, she loves the Humane Society. That’s a wonderful thing for animals. So you can give money from a donor-advised fund, even if it’s Christian based, to that. Shawn (08:39): It’s not a Christian nonprofit but they are God’s creation. Bob (08:43): That’s right. You got it. Shawn (08:44): Alright, so three disadvantages because I want to make sure we’re not just being all roses. Bob (08:48): Those are 7 advantages but we are going to go into three disadvantages that you need to know about. Shawn (08:52): What’s number one? Bob (08:53): Number one, it’s non revocable. I mean once you do this, you cannot take that money back because you’ve given that money to the donor advised fund that is a charitable organization so you can’t pull it back. Shawn (09:05): And you did that so you could take that tax deduction. So that’s part of why it’s irrevocable because otherwise they’re going to have to chase you down for the money. Bob (09:15): The second disadvantage, everybody’s got to pay their staff. So for all the tax rules and abiding by the IRS rules and everything, there is a small annual fee for these around a 0.5% to 1%. But you know what, that’s really low when you think about giving to any charitable organization. I mean, so 99.5% to 99% is going to go to the charities and if you put it in the donor-advised fund and the very next month take it back out, then that’s an annual fee that’s around that. Shawn (09:44): It’s annual. Exactly. Bob (09:45): But in my research I noticed that seems to be the going rate is between a 0.5% and 1%. I didn’t see any higher than 1%. Shawn (09:52): Well if you have a lot of assets in there, Bob, you actually have it invested. So even if it’s just moderate growth. Bob (09:58): Oh they could overcome that. Yeah, that’s a very reasonable amount to be able to overcome. (10:01): Yeah. Shawn (10:01): Alright. What’s number three? Bob (10:03): You can’t give a QCD. That’s called a qualified charitable distribution and that’s for our clients that have IRAs and they’re 73 or more. They have the RMD they want to do every year. Shawn (10:16): Okay. One of the alternatives to the RMD to satisfy that is the qualified charitable distribution or QCD. Bob (10:22): But you can’t do that with the donor advised fund. You have to give that directly to the charity. Does that make sense? Shawn (10:28): Right. Bob (10:29): It’s kind a weird rule. I don’t know why they won’t do it, but that’s an IRS rule. Shawn (10:33): You mentioned this before, you can have an IRA beneficiary be a donor-advised fund. Right? So upon your death. Bob (10:40): That’s right. Shawn (10:42): But not for a qualified charitable distribution or QCD from your IRA to meet that RMD. Bob (10:48): That’s correct. That’s right. So let’s list these real quick. There’s 12 things that you could contribute to a donor-advised fund. Number one is cash. Shawn (10:58): Up to 60% of your income. Bob (11:00): And then all the rest of these are up to 30% of your income. But if it goes more than that, you can carry forward those deductions. Shawn (11:07): Oh, okay. So if you did something at 50% of your adjusted gross income in one year, you can deduct that first 30% and then carry that 20% into the next year. Bob (11:18): That’s right. That’s correct. Alright, so it’s cash is to 60% and then these other 11 are stocks and usually that’s appreciated stocks, bonds, ETFs, real estate, a lot of people, maybe you have a lot that you’re not using for, you plan on building a homeowner but you never did it. You want to contribute that lot, then you can do that – any kind of real estate, automobiles, valuable art, gold and silver. So there’s precious metals. Shawn (11:46): So your precious metals. Yeah. Bob (11:47): Yep. Mineral rights. Let’s say you have some mineral rights from oil and gas or water rights. Shawn (11:52): That’s cool. Yeah, so you could donate those, give those to the donor advised fund to then generate charitable contributions ongoing. Bob (11:59): You’re right. Shawn (12:00): Oh, that’s awesome. Bob (12:00): And this next one’s very interesting – business interest. If you own a business, you can give away some of that business interest to a donor advised fund. Shawn (12:07): Wow, okay. Bob (12:08): Okay. And that donor advised fund, of course can be the part or whole beneficiary of an IRA 401k, 403b, TSA, any qualified plan and estate plan. Shawn (12:19): Wow. Awesome. Alright, so how to get started? Bob (12:23): Give us a call. We’ll help you set up this donor advised fund. It is a ministry of ours. We love doing this. And just text or call us at 830-609-6986 or go to our website www.christianfinancialadvisors.com. Remember you can do this before the end of the year and some of these donor-advised funds, which the one that we use, you can actually set it up online within about 15 minutes and turn around and make a contribution to it right then. Shawn (12:48): And then figure out where you’re going to donate to ultimately later on, get this done before the end of the year. Go celebrate Christmas and New Year’s with your family and then come back in first of the year and figure out where you’re going to donate. Bob (13:01): That’s right. Shawn (13:03): Yeah. We love this. Like Bob said, call us, text us, visit our website, comment on the video if you’re watching it on YouTube or something. But yeah, we love this. This is all about kingdom building. This is about setting a great example for the next generations as well, and something that long after you’ve gone home to be with the Lord that this is something that can continue to expand God’s kingdom, which is awesome. Thanks as always for joining us and until next time, God bless. [DISCLOSURES] * Investment advisory services offered through Christian Investment Advisors Inc dba Christian Financial Advisors®, a registered investment advisor registered with the SEC. Registration as an investment advisor does not imply a certain level of skill or training. Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Shawn Peters, and their guests. Bob and Shawn do not provide tax advice and encourage you to seek guidance from a tax professional. While Christian Financial Advisors® believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability.