Donor-Advised Funds: A Tax Efficient Way to Give

For many investors, charitable giving is an important part of their financial plan.

At the same time, portfolios often include assets that have appreciated significantly over time, such as individual stocks or mutual funds.

For individuals and families in White Bear Lake and across the Twin Cities, there is a strategy that can help connect these two areas:

Donor-Advised Funds (DAFs).

What Is a Donor-Advised Fund?

A donor-advised fund is a charitable giving account that allows you to contribute assets, receive a tax deduction, and then recommend grants to charities over time.

Instead of donating directly to a single organization, you contribute to the fund and retain the ability to support multiple charities when you choose.

Why Appreciated Assets Matter

Many investors hold assets that have increased in value over the years.

If those assets are sold, the gain may be subject to capital gains tax.

This is where a donor-advised fund can provide an additional benefit.

By contributing appreciated assets directly to a DAF, you may be able to:

• Receive a charitable deduction based on the full market value
• Avoid capital gains tax on the appreciation
• Support charitable organizations over time

A Real World Example

I recently worked with a client who held a large position in a highly appreciated stock.

Rather than selling shares and triggering capital gains tax, we contributed a portion of the stock to a donor-advised fund.

This allowed the client to:

• Receive a charitable deduction for the full value of the donated shares
• Avoid capital gains tax on the appreciation
• Create a pool of funds to support multiple charities over time

It also provided flexibility to decide when and how to distribute those funds to different organizations.

Flexibility in Giving

One of the advantages of a donor-advised fund is flexibility.

You can make a contribution in one year, receive the tax benefit, and then recommend grants to charities over time.

This can be helpful for:

• Managing higher income years
• Coordinating charitable giving with tax planning
• Supporting multiple organizations in a structured way

Key Considerations

While donor-advised funds can be effective, there are a few important factors to keep in mind:

• Contributions are generally irrevocable
• Funds must be donated to qualified charities
• Investment options may vary depending on the provider

Understanding how a DAF fits within your overall plan is important before moving forward.

Why This Matters for Financial Planning

For investors in White Bear Lake and the greater Twin Cities area, managing taxes on appreciated assets is often a key part of long term planning.

Donor-advised funds can help:

• Reduce the tax impact of selling appreciated investments
• Align charitable giving with tax strategy
• Create flexibility in how and when donations are made

Final Thoughts

Charitable giving does not always have to involve cash.

For investors holding appreciated assets, strategies like donor-advised funds can provide a more tax efficient way to give.

If you are considering charitable contributions and want to explore how to incorporate appreciated assets into your strategy, it may be helpful to review your options.