What do a pair of Ferraris, a precious stone from the bottom of the sea, a collection of rare books, and a Western ranch have in common?
Ren has assisted clients from financial institutions like yours in donating those and other complex assets to charity, ensuring that those clients meet their philanthropic objectives, get tax benefits, and insulate their charitable ambitions from the effects of uncertain economic environments.
During times like these, your firm works hard to assure clients that your advisors are equipped to deliver the options and counsel necessary to continue to preserve and build wealth. But what about those clients who are passionate about supporting charitable causes but whose wealth is held in non-cash assets? Or those who face capital gains taxes on an appreciated asset? Is there a way you can help them continue to make a difference in the world?
Yes, by helping them donate their non-cash assets to a donor-advised fund (DAF). With a DAF, clients not only will be equipped to make gifts through all kinds of economic storms, they’ll also be in a position to enjoy tax benefits, give more than they might have expected, create a vehicle for long-term giving, and more.
And they’ll do all of this while putting more assets under your management, deepening their relationship with your firm, and making an even bigger impact for good causes.
Putting complex assets to work for good
When people think about giving to charity, they typically think first of donating cash, or, perhaps, of selling an asset and giving the proceeds to charity.
That approach comes with two problems:
First, the vast majority of Americans’ wealth (estimates run from 90% to 99%) is held in non-cash assets such as real estate, shares of stock, collectibles, fine art, and so on. Plus, much of the generational transfer of wealth, predicted to range from $84.4-$72.6 trillion, will be in the form of non-cash assets. As a result, focusing on cash limits the potential pool of donations.
Second, selling such assets creates a taxable capital gain, which not only puts a burden on the donor but also can reduce the value of the gift.
On the other hand, donating assets directly to a nonprofit and letting the nonprofit sell them and keep the proceeds allows the donor to dispense the assets without a taxable capital gain. Unfortunately, that process can seem daunting, as it often involves complex transactions most advisors wouldn’t be comfortable facilitating, and it forces a donor to make a single decision about where they want their assets to make a difference.
A recognized leader in DAF services and expertise, Ren provides the expertise and tools necessary to guide an advisor through the process of helping a client donate complex assets to a DAF and facilitate the transaction.
For those who need a sponsoring charity, Ren has an affiliated public charity, Renaissance Charitable Foundation (RCF), that can establish the DAF and provide ongoing administration – all while keeping the donated assets under your firm’s management.
Once a DAF is established, the donor can recommend that periodic grants be made from the fund to charities of their choice. The fund will be under your firm’s management, which means your advisor and client can work together to direct how assets are invested.
The best part is that your advisors become the trusted experts to your clients because they are equipped with the knowledge to make such a recommendation and have the resources for executing it. Ultimately, this sets them up to provide a higher level of service by helping clients dispose of assets in a tax-advantageous way while also creating a long-term giving vehicle that can mitigate inevitable economic ups and downs.
Complex assets deliver simple rewards
The basic benefit of contributing complex assets to a DAF is straightforward: the asset goes to a charity and the donor avoids taxes. But additional benefits for the client and your firm make it even more worthwhile:
- Increased giving. When a donor sells an asset to make a cash donation to charity, they have to pay taxes on that sale. As a result, they effectively reduce the resources available to give. By donating the asset itself to the nonprofit, the donor transfers the full value of the asset to the charity without surrendering any wealth to taxes – a win for both the donor and the charities they support.
- Economic buffering. It would make sense that donors would reduce their giving during economic troubles, market declines, and other financial stressors, but DAFs function as a pool of donatable funds that insulate donors from economic ups and downs. As a result, assets that are donated to a DAF will allow donors to continue to put resources to work for good causes in any economic environment.
- Long-term giving. In addition to this buffering benefit, putting a complex asset to work in the form of an ongoing charitable fund gives the donor the power to recommend grant distributions as long as the DAF exists, a power that can be passed on to future generations.
- Flexibility. If a donor gives an asset directly to one charity, that’s a one-time gift to a single cause. However, if the donor uses that asset to create a DAF, they have a fund from which they can give multiple gifts to any number of charities.
- Deeper engagement. Guiding a client to the benefits of a DAF not only will deepen your advisor’s relationship with the client through a show of expertise, but it will also forge an additional connection with the client, who can work with your firm to guide DAF investments as long as the DAF exists. Again, this power can be passed on to future generations.
- Impact. While most high-net-worth (HNW) clients carefully consider the tax implications of any financial move, taxes aren’t their top concern when it comes to charitable giving. In fact, an AssetMark study showed that tax planning ranked eighth among the HNW individuals’ reasons for giving, behind reasons like personal satisfaction, a drive to make a difference, and the desire to establish a family legacy. By converting complex assets to DAFs, donors put themselves in a position to achieve those giving objectives while also benefitting from tax advantages.
Ren can make it happen
As with the cars, gem, and books mentioned above – as well as partnership interests, hedge fund assets, stock options, commodities, and more – Ren has facilitated countless transactions allowing the wealth in complex assets to be released for the good of charitable causes.
Working with your team, we go through the due diligence process (for which there is no upfront fee) to assess the value and condition of the asset, create a gift proposal, and execute the transfer of the asset. Through RCF, we then liquidate the asset and put the proceeds into the client’s DAF, from which the donor can recommend grants to support causes they care about. If necessary, RCF can hold assets for more than a year, and there is no cash requirement with this transaction.
Once the DAF is established, we provide administration, client reporting, generation of tax documents, and other required activities. Throughout this process, we put your firm and advisor in a lead role, underscoring your firm’s part in the process of making this possible.
While each complex asset transaction is unique, we do see trends. A couple of years ago, we dealt with a lot of proceeds from mergers-and-acquisitions activity; these days, we’re seeing more alternative investment proceeds, including private equity firm shares, hedge fund wealth, and SPAC income.
As you can imagine, transferring these assets to charity can be technical and complicated, but Ren provides the expertise to streamline the process as much as possible and ease the burden on your institution.
If you would like to equip your advisors to provide these services to clients, talk to our experts at Ren.