The best financial advice I received this year - Donor Advised Funds

Donor-Advised Funds Gaining Assets—and Fans


Jeff Fishman, a financial adviser at JSF Financial LLC in Los Angeles, is telling clients to consider accelerating any charitable giving they were planning to do in early 2018 into the end of this year instead.

To get the most out of existing tax breaks (which may be reduced if the plan goes through), donate appreciated stocks to charities and donor-advised funds by Dec. 31, says Mr. Fishman.
Why Tax Reform Makes This the Best Time to Open a Donor-Advised Fund

Donor-advised funds are essentially a “poor man’s endowment.” A donor-advised fund is easy to create, but most major discount brokers offer them. And choosing a DAF with your existing discount broker simplifies and quickens account transfers.

Unlike an endowment, money related to your donor-advised funds is not held in a separately managed investment account. Rather, it is invested into a central pool along with everyone else making contributions within the same brokerage firm, and so you have a “shadow account” corresponding to your portion. You then give a recommendation to the DAF pooled-fund manager of how you want your money invested before you donate it to charity, and your shadow account is credited accordingly, tax free.

When it comes time to donating your money to charity, you recommend the charity and the amount to give. The charity must be an IRS-qualified public charity on the list supported by the DAF manager. You also can give instructions of how the charity will use your money. However, selecting the “undesignated” or similar option will make the transfer happen much faster, and that option gives your chosen charity the most flexibility. Barring extreme cases such as complicated instructions, the DAF manager follows your advice and donates the money.xxx Contributions reduce your taxable income in the year in which you contribute to your DAF, not when you decide to recommend a donation to the charity, which might happen in the future. The reason is that the pooled DAF is itself essentially a charity, and so your DAF manager sends you a charitable receipt, not the final charity that ultimately receives your money. Your contribution to your DAF, therefore, is irrevocable.

That’s the reason why you can only make “recommendations” on how the money is invested and where it ultimately goes: it is technically not your money anymore. In fact, Fidelity Charitable is now the largest U.S. charitable organization, bigger than United Way.

The timing couldn’t be better for setting up a DAF.

There is a good chance that your marginal tax rate will decrease next year due to tax reform. Combining your charitable donations from this year and next year into a big contribution to your DAF this year could save you big money on your taxes. You get the entire tax write-off this year, when tax rates are higher. But you then recommend donating only half of the money this year and half next year, and so the actual flow to your desired charities remain the same.

But the tax savings get even better.

Your taxable mutual funds or stocks probably appreciated a lot in value during the past several years. So contribute appreciated shares to your DAF instead of cash. You get a double tax savings bonus. No capital-gains taxes are paid on the appreciated value. Plus, your contribution reduces your taxable income at the fair market value of the entire value of the donated stock. Suppose that you instead first sold your stock at the fair market value and donated the resulting cash. You would still reduce your taxable income by the value of the stock sale, but you would now pay capital-gains taxes on the appreciation. So, contributing stock instead of cash saves you taxes on capital gains.

One caveat: To take the entire tax benefit this year, the value of your stock contribution to your DAF can’t exceed 30% of your adjusted gross income.

As a quick example, suppose that your marginal tax rate is 35%, but you expect it to fall to 25% next year. And suppose that you intended to give $10,000 in cash next year to charity. By shifting that contribution to the DAF today, you save $1,000 in taxes. Moreover, suppose that you previously bought some stock for $7,500 that is now worth $10,000 today. By contributing that stock instead of cash, you save another $375 in capital-gains taxes, for a total additional tax saving of $1,375 relative to giving cash next year.
Comment: We've been thinking about this for several years. On Friday December 8th, my brother-in-law Dave walked we through the benefits. The next day we opened a DAF with Fidelity and funded it. We funded it with cash and 100 shares of stock that we had bought some time ago and was highly appreciated. What it means to our 2017 taxes: Our schedule A charitable donations will be unusually high this year - reducing our taxes. Also had I sold the stock, I would have paid capital gains on the profit.

The big question: Can one give to your church through this vehicle? For us it was easy and we have already tried it successfully this year and have set up monthly contributions going forward into 2018.

Who isn't it for: People short on cash. Investors who do not have appreciated assets.

The paradigm shift. The donation is to the DAF and the DAF makes an advised grant to the charity.

Image source: Kiplinger

Images below illustrate the Fidelity grant dashboard


  1. Jim, I'm sad to see that you encourage people to try to lower their taxes. The problem in this country is that people want to defraud the government and think that somehow it's "their" money and they should be allowed to keep it. Now, I'm all for a sustainable, fair income, but as it it stands, Americans are not taxed enough, of any and all income categories. And certainly no American should ever be allowed to make $100,000 or more. Since there are not at this time laws on income, at least we can do all we can to make sure that people who make 6 figures are highly taxed for it.

    Look at the current tax debate. I don't think any sane person or any Christian person could vote for that. No on in this country deserves tax breaks. And of all people, the rich certainly deserve none and should actually be taxed much higher than they are.

    1. It's not defrauding anyone to follow the laws to not pay more taxes than are legally required.

      Not so sure what is so sacrosanct about $ 100,000. People should be able to earn as much as they want ... trading their time and leveraging their talent & education to make as much as they want.

      I think of doctors ... worth it!

      I made more than that level in IT.

    2. Jim, legally you are not defrauding the government. You are technically correct. It is the crazy Trump supporters who vote for lower taxes who allow this. You are correct technically, but morally I disagree. Americans pay far too low in taxes and to actually want to pay even less is morally repugnant, even if made legal.

    3. I file my taxes and pay what the government requires. They have a copy of all my forms so I literally cannot cheat.

  2. Jim, I'm also sad to see that are advocating getting out of taxes by giving to a church. Churches are the LAST places that need our money! I see so many churches trying to get political and being anti-gay marriage, anti-gay, anti-abortion, etc. Any church that meddles into politics such as that deserves no support. Now, if a church wanted to actually do something such as, oh, be a church, then I have no problem giving to it. Just don't expect to be homophobic and radically pro-life and anti-gun and expect to have any kinds of tax breaks. Any church that mixes religion with politics is not good.

    1. My church is not political.

      However it does teach the Bible. I believe the Bible teaches that human life commences at conception (and so I am opposed to abortion). I also believe that marriage is to be between a man and a woman.

      My church deserves my support

  3. Jim, if your church wants to believe that, that is up to them. All I'm saying is that churches who believe this shouldn't expect to be eligible for tax breaks for contributions. Any church that believes those things you mention is going against the laws of the land and is getting political. Again, if they want to do this, that is their business and their prerogative - just don't expect to be eligible for 401(C)3 status. Last time I checked, abortion is legal and gay marriage is legal. Any church that goes against these two things is being political and does not deserve the tax-exempt designation. You can support your church if you want to, no one is stopping you. All I'm saying is that churches that get political like that should be allowed to give contributors tax-deductible write off. If you want to give, then give, but don't expect to be able to deduct as a contribution on your tax.


Any anonymous comments with links will be rejected. Please do not comment off-topic