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This is a very thorough article, written by Michael Kitces, about donor-advised funds: rules re. contributions, tax deductions, strategies for deployment, distribution of the "fruits of their labors." The target of the articles is financial advisors, but individual investors have direct access to them as well (I know that T Rowe Price has them, and I think Fidelity also).
On the plus side, they make donating assets much easier than donating directly to your favorite charity (especially if the charity is small and not set up to handle donations other than cash).
The main benefit IMHO is the ability to time-shift, i.e. donate one year and get the money to your designated charity (or charities) in later years. Good if you want extra deductions up front but want to spread out the actual donations, or if you don't know right now exactly where you want your contributions to go.
A minus is the cost. Typically 60 basis points (T. Rowe Price is 50 basis points). Many people complain about VA wrapper fees, which with these same providers (T. Rowe Price, Fidelity, Vanguard) are well below 60 basis points. So a 60 basis point cost for DAFs is not insignificant.
Another minus is the limited investment options offered for the money in the DAF before it is disbursed to your designated charities.
Disclosure: I have contributed to a DAF.
I liked one of the comments - about donating NUA stock. A similar idea I've been toying with is donating insurance stock obtained via demutualization. (That's when a formerly mutual insurance company converts to a stock company, and as part of that conversion grants stock to its policy holders).
The IRS still claims that the cost basis of this stock is zero. So donating this stock is "better" than donating other stock that you purchased (since that other stock will have a non-zero cost basis and thus less unrealized capital gains to give away). Court rulings are all over the map, ranging from saying that the gain is the full value of the stock to recognizing no gain, to points in between. This muddle is another good reason to consider donating this stock.
Comments
On the plus side, they make donating assets much easier than donating directly to your favorite charity (especially if the charity is small and not set up to handle donations other than cash).
The main benefit IMHO is the ability to time-shift, i.e. donate one year and get the money to your designated charity (or charities) in later years. Good if you want extra deductions up front but want to spread out the actual donations, or if you don't know right now exactly where you want your contributions to go.
A minus is the cost. Typically 60 basis points (T. Rowe Price is 50 basis points). Many people complain about VA wrapper fees, which with these same providers (T. Rowe Price, Fidelity, Vanguard) are well below 60 basis points. So a 60 basis point cost for DAFs is not insignificant.
Another minus is the limited investment options offered for the money in the DAF before it is disbursed to your designated charities.
Disclosure: I have contributed to a DAF.
I liked one of the comments - about donating NUA stock. A similar idea I've been toying with is donating insurance stock obtained via demutualization. (That's when a formerly mutual insurance company converts to a stock company, and as part of that conversion grants stock to its policy holders).
The IRS still claims that the cost basis of this stock is zero. So donating this stock is "better" than donating other stock that you purchased (since that other stock will have a non-zero cost basis and thus less unrealized capital gains to give away). Court rulings are all over the map, ranging from saying that the gain is the full value of the stock to recognizing no gain, to points in between. This muddle is another good reason to consider donating this stock.