At first glance, your clients probably see charitable giving as a simple exercise: They draw from their wealth to give money to a nonprofit organization that uses it to do good things. How hard can it be?
But things get complex in a hurry.
- What’s the best way to give?
- Does it matter when gifts are made?
- How does your client get the best tax benefit?
- What documentation is needed?
- Which assets should they draw from to make a gift?
And so on. It’s enough to make some people decide that giving isn’t worth the hassle.
That’s where you come in as a financial advisor who’s focused on a holistic approach to your client’s wealth portfolio. By helping clients discover the ways donor-advised funds (DAFs) can simplify charitable giving, you can take much of the stress out of generosity and ensure your client makes smart giving decisions.
And the best news? Even as end of the year approaches, it’s not too late to put a DAF to work.
How donor-advised funds work
A DAF is simple: It essentially functions as a charitable fund created by your client. Assets in the DAF are invested to create a pool of money that can be used to make contributions to qualified nonprofit organizations recommended by the client. Your client receives tax deductions when assets are donated to the DAF. Meanwhile, assets deposited into the DAF remain under your firm’s management, which means you can continue to work with your client to direct how funds are invested.
And all that complexity your client worried about? It’s taken care of by a DAF administrator like Ren, which provides tools and expertise to take the burden of DAF administration off you, your firm, and your client. Ren even provides the requisite sponsoring charity that hosts the DAF, and provides a user-friendly portal giving you and your client easy access to the process of giving, information about charities, and more.
How does all of this work? Let’s take a look through three lenses: how a DAF simplifies making a gift, reporting gifts for tax records, and giving in general.
How donor-advised funds simplify giving
It’s easy to assume that the simplest way to make a gift is to write a check to a charity. The problem with that assumed simplicity is that it comes with limited giving flexibility, time constraints, tax inefficiencies, and more. Let’s look at some of the ways a DAF makes giving easier, and how Ren makes it happen.
Easing the process
- Once a DAF is established, the act of giving from that DAF is quick and efficient – no checks to be written, no tracking down addresses or even websites to find out how to give. Your client simply deposits money into the DAF. Plus, a single gift to a DAF can be used to make multiple grants to multiple charities over multiple years, which means the donor gets the tax deduction now, even before funds are granted to the ultimate recipient.
- That last point above can be especially helpful if a client wants to offset a taxable event with a charitable gift but hasn’t yet decided which charities should benefit. By contributing to the DAF, the client can enjoy the current-year tax benefits without having to decide immediately which specific charities should receive grants.
- Once the DAF is established, the same DAF can be used year after year to gain the tax year benefits for charitable giving.
Making the contribution
- Putting assets into a DAF can be as simple as depositing or transferring funds from other accounts into the DAF. It can be done with one transaction or a series, and deposits can be set up to occur automatically.
- Does your client want to give from some of their publicly traded securities? No problem: The securities can be donated directly to a DAF without being liquidated. In fact, contributing them directly to the DAF rather than cashing them out first can deliver significant tax benefits.
- Even complex assets – such as real estate, private business interests, fine art, and more – can be contributed to a DAF without being liquidated. As with publicly traded securities, making the gift before liquidation typically delivers greater tax benefits. It should be noted, however, that the value of such complex asset won’t be available for granting until the asset is liquidated.
Making a grant
- Any IRS recognized 501c(3) public charity can be granted to through Ren’s system, in a quick and straightforward process.
- If you or your client need to research a nonprofit before making a grant, Ren makes it easy. The portal provides resources and information such as what organizations do, how they use their resources, and more, all in one place.
- You and your client don’t have to worry about making sure a particular nonprofit meets IRS requirements for charitable giving. Ren has already taken care of that.
- Once you and your client decide what charity should receive funds, Ren sends the money to the nonprofit.
- If your client wants to remain anonymous, Ren can shield their identity.
How donor-advised funds simplify tax record keeping
Let’s face it: One of the most intimidating aspects of charitable giving is dealing with the required documentation and tax reporting. Ren removes that barrier.
- Neither you nor your client have to worry about keeping records of gifts made through the DAF. Ren has it covered and will generate statements on request and at the end of the year.
- Most important perhaps, Ren manages all charitable-giving tax records for the DAF, and your client only needs a single receipt for tax reporting (regardless of how many contributions are made to the DAF or how many grants are distributed), which are generated by Ren.
- Your client doesn’t need to worry about reporting investment gains or income generated by the DAF, and that growth or gain has no tax implication for your client.
Simplifying the charitable process as a whole
Giving to charity should be a pleasant, fulfilling process. Unfortunately, the mechanics and implementation can take a lot of joy out of it. Ren helps your clients rediscover the positive aspects of giving and minimizes the negatives, building on the attributes of DAFs and easing the process.
You can help your clients tap into the simplicity of DAFs by helping them understand two basic facts:
A DAF offers simple benefits
- Gifts to DAFs generate current-year charitable tax deductions.
- Donating appreciated assets to a DAF can reduce capital gains taxes.
- The DAF can issue grants to specific charities.
- DAFs create a vehicle for establishing philanthropic legacies for the donor and their family.
- DAFs allow a client to unlock wealth in illiquid assets for charitable good.
- DAFs can play a key role in reducing estate taxes.
Ren’s DAF portal makes simple giving even simpler
- Ren’s user-focused DAF portal makes it easy to monitor and maintain the account.
- Initiating a contribution can easily be done through the portal.
- The portal provides direct access to charity research.
- Your client can recommend grants through the portal.
- The portal provides a view of the DAF’s charitable impact over time.
- The portal provides direct access to statements and tax documents.
It’s not too late
Perhaps the greatest demonstration of the simplicity of putting a DAF to work for your client is the fact that it’s not too late to make it happen for 2023. Here’s the year-end giving checklist every financial advisor needs to make sure they help their clients give strategically and impactfully.
Even as the year winds down and clients start getting into panic mode about year-end tax strategies and charitable giving, Ren can help your clients create DAFs to reach their objectives this year and reap rewards for years to come.
If you want to learn more about how you can help clients simplify their charitable giving, talk to our experts at Ren.