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Donor Advised Funds

One of my favorite financial vehicles out there is a donor advised fund (DAF).  

DAF's are an amazing tool, and sometimes are viewed as only useful for large charitable gifts of significant assets.  But they also are an amazing tool for cash-flow giving as well.  

The concept is laid out in the diagram above: you do your monthly giving into a DAF, and then you can grant gifts from the DAF however frequently you wish to IRS designated non-profits that you would usually write checks or give online to directly from your checking account.

A few highlights of why I personally use and recommend a DAF for clients:

1. Simplicity.  All of your donations are given to one entity, which generates one tax receipt at the end of the year.

2. Organization. You can give all of your charitable gifts from one source and track those gifts over multiple years. 

3. Clumpy giving. If you want to give a large amount within one tax season (i.e. to qualify for itemized deductions under the new tax law) but not disperse the gifts, you can do so.  There is usually no time constraint on when you have to give the amount from the DAF to the other organization.

4. Communication. Families can talk as a unit about the family generosity vehicle and get kids involved with making gifts.

5. Tax efficiency.  For highly appreciated taxable assets (stocks, businesses, real estate, collectibles) you can gift the asset into a DAF, claim the amount gifted, and the DAF can sell it and pay no capital gain tax on the appreciation from when you purchased it.

I personally use National Christian Foundation’s DAF, but a lot of large brokerage firms now offer them, including Fidelity and Vanguard.  
Interesting Resources 

1. Michael Kitces - Why (Prudent) Spending Rates Matter More Than Savings Rates 
So many rules of thumb on how much to save: 10% of your income.  15% of your income.  Pre-tax. Post-tax.  Starting early.  It can be overwhelming.  A lot of those rules of thumb miss a basic premise that it entirely depends on each individual family’s current and future income needs.  This article breaks down the average spending of American families, and how difficult it can be for (some) to save enough.  After a ton of research confirming the point - it’s pretty straightforward: get on a budget and figure out how much you need to save based on your expenses.  


2. USA Today - What 25 Everyday Items Cost 30 Years Ago
Head nod to Fident Friday reader Trevor for sending this my way this week.   Inflation is one of those tricky little secrets that creeps up on us.  It has significant power over long periods of time, and USA Today broke this down by looking at everyday purchases we make: what they cost 30 years ago and what they cost today.  Two items that really stuck out to me were houses (median sale price in 1987 was $110,000; at the end of 2016 it was $323,100) and bacon (from $1.90/pound to $5.25/pound!).  Inflation usually hovers around 3% over long periods of time, and sometimes it’s higher and sometimes it’s lower.  It’s a huge reason why for folks planning for retirement that the “enough” figure seems so absurdly high - because our dollars won’t stretch as far as they do today.  
Do you personally use Donor Advised Funds?  Interested in learning more about them?  Feel free to reply back to this email and let’s have a chat about it.  Sparking generosity is one of the most rewarding things about my job.  

Gratefully,
Jeremy

PS - as you read this, you may have thought of someone who could benefit from DAF's.  If you think they’d find this email helpful, feel free to forward it to them - and let me know if you have questions about a specific situation.
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