Rebalancing your portfolio is a disciplined strategy that consists of selling and reallocating assets. The rebalancing process is an opportune time to keep your favorite nonprofit organizations in mind. Establishing a donor-advised fund, or a charitable investment account, has many benefits:
Charitable Investment Accounts Take Complexity Out of Giving
If you’re thinking about giving to charitable organizations but want to avoid the complexities of managing your gifts, a charitable investment account is a viable option. A charitable investment account makes it easy to support all the qualified charities you love and only worry about one tax receipt. Donors can contribute as frequently as they want, and under current tax rules, they receive the charitable tax deduction immediately. Charitable investment accounts are also less complex and costly than managing a private foundation. Other benefits of charitable investment accounts versus private foundations include:
- When you contribute to a donor-advised fund under the current tax laws, you receive a same-year tax deduction and can take your time deciding when and where to give.
- A donor-advised fund gives you the option to customize each charitable grant and give anonymously.
- Adding a donor-advised fund to your portfolio requires no account administration on your part. The sponsoring charity handles all recordkeeping and tax filings.
- Donor-advised funds have lower operating expenses than private foundations.
Should You Convert A Private Foundation to a Charitable Investment Account?
When rebalancing your portfolio, wealth advisors may want to consider dissolving private foundations and transitioning assets to a charitable investment account. Some of the most common reasons for doing this are to provide future generations an avenue for pursuing charitable goals or to minimize the administration requirements of private foundations. Here are a few questions to discuss with your wealth advisor before converting private accounts to charitable investment accounts:
- What roles will those involved in the foundation have?
- Which nonprofits will receive grants through the account?
- How will your investment strategy shift from one vehicle to the other?
Compare Charitable Investment Accounts to Private Foundations
|Tax Considerations||Charitable Investment Accounts||Private Foundations|
|Tax deduction limits for cash contributions||60% Adjusted Gross Income||30% Adjusted Gross Income|
|Tax deduction limits for securities contributions||30% Adjusted Gross Income||20% Adjusted Gross Income|
|Tax deduction limits for real estate and other assets||30% Adjusted Gross Income, deductible at fair market value||20% Adjusted Gross Income, deductible at the lesser of fair market value or cost basis|
|Reporting||None at the account level||Required annual state and federal tax returns|
|Taxes||None||Excise taxes, up to 2% of annual investment income|
Charitable Investment Accounts Allow Your Investments To Grow Tax-Free
Investing in a charitable investment account does more than align your portfolio with your asset allocation strategy; your donation can also grow tax-free while you decide which charities you would like to support. With a charitable giving account, you can:
- Support IRS-qualified charities with grant recommendations from the donor-advised fund.
- Make grant recommendations “in honor of” or “in memory of” a designated person.
- Attach a specific purpose to a grant.
The charities you support can also benefit from market growth. When your invested assets increase in value, you’ll have more money to grant to your charities. In addition, another benefit is that you can take an immediate tax deduction for the gifts you make without being taxed on growth.
Charitable Investment Accounts Create A Lasting Legacy
Create a lasting legacy with your loved ones. You’ve worked hard to establish your charitable giving goals. A charitable investment account allows you to maintain your level of giving, even after you are gone, by naming your family members as successors. Your successors can continue your philanthropic efforts for years to come. Things to consider when creating a charitable legacy:
- Define areas that you and your family are passionate about, such as education, healthcare or the environment.
- Determine the geographic areas where you’d like your giving concentrated.
- Discuss any absolutes or more stringent guidelines for your giving.
- Determine a timeline for your giving, which may be indefinitely or for a set number of years.
Greater Horizons’ philanthropic advisors work with individuals and families to maximize and organize their charitable giving. They make giving easy and will work with you to develop a solution to meet your needs.