The art of using donor-advised funds for complex assets

Donor-advised funds (DAFs) continue to be the fastest-growing philanthropic vehicle. One of the main reasons for their popularity is their ease of use. Many advisors describe DAFs to their clients as philanthropic savings accounts. Once the assets are donated, the tax deduction may be taken in the year of the contribution, and the fund holds the charitable gift until the donor recommends grants to qualified charities.

Another reason for their popularity is their longevity. Heirs can be named as grant advisors of the fund, creating a tradition of philanthropy. The fund can be named after your family and grant letters can recognize individual grantors for their gifts. Also, grants can continue to be made after the death of the donor(s) if elected before death.

However, perhaps the most overlooked reason for the popularity of DAFs is how versatile they are when it comes to the assets they can accept. DAFs can be opened using cash or publicly-held stock, but they can also take in complex assets like shares of a business interest, real estate, or cryptocurrency.

Once the assets are gifted to the DAF, Ren can liquidate the assets, relieving the donor from the responsibility of capital gains taxes. “We have been seeing an increase of these types of gifts over the past year,” said Kim Ledger, Vice President of Complex Assets at Ren. “With it being so easy to open a DAF with these specialty assets, more donors are getting involved in charitable giving every day.”

Outside of a DAF, these non-cash assets are subject to tax, but when donated to a DAF, they are eligible to be written off as charitable donations, just as they would if they were gifted directly to their favorite charity. The proper liquidation of these assets can be tricky though, which is why partnering with Ren is a wise move. For example, if a donor wants to sell their closely-held business, they would be subject to Unrelated Business Income Taxes (UBIT). However, the S-Corp can be gifted to Renaissance Charitable Foundation, Ren’s supporting charity, and because of its supporting organization trust, the S-Corp can be sold and the UBIT can be avoided by the donor.

Also, because that trust was established in a state that does not collect income tax, the sale is only subject to federal capital gains taxes at the charitable organization rate of 20%. “We are happy that Renaissance Charitable Foundation received the designation from the IRS to set up the Supporting Organization Trust making it possible for our clients to direct even more of their assets to charitable giving,” Ledger said.

Ren has recently helped clients with the donations of Bitcoin and other forms of Cryptocurreny, the sale of mineral rights, profits from book sales, gifts of artwork, and even watercraft. If you would like to start a DAF and have non-cash assets that you would like to donate, we’re here to help.

Contact us to find answers to any of your other charitable planning questions.

Is a donor-advised fund the right choice for your client?​

Get the answers to the most frequently asked questions about donor-advised funds in our free eBook — 12 Questions to Ask Before Setting Up a Donor-Advised Fund.