Author Topic: Should I be donating cash vs. appreciated securities vs. DAF?  (Read 618 times)

Dr Kidstache

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Should I be making charitable donations with cash, appreciated securities, or via a DAF?
What do you guys think for my particular situation? Thanks in advance for letting me pick your brains!

Background: I became totally & permanently disabled a few years ago. I am super fortunate to have long-term disability insurance (as well as SSDI) and have been receiving benefits since becoming disabled. BUT I've been hoarding all income & reduced my charitable giving to a tiny amount because the benefits were very uncertain. I just finally won the multi-year battle with the LTD insurance company (YAY!!! WHAT A FREAKIN' RELIEF! THOSE GUYS ARE TOTAL BASTARDS!) & so my benefits are expected to continue for the foreseeable future. Charitable giving has always been an important value to me and I'd like to start donating more now that my income is more secure.

Goal: I'd like to donate ~5% of my net income/year (roughly $8500/year).  If/when I reach FI (ballpark 5-7 years if I continue to receive benefits) I'd like to increase that amount significantly for the years that I continue to receive disability benefits beyond reaching FI.

Income/tax/asset situation: (2018 numbers which should be pretty static going forward)
Taxable income: $128,172
  • Taxable LTD benefits: $111,247
  • Taxable SSDI benefits: $19,106
  • Taxable interest: $442
  • Ordinary dividends: $5,368
2018 Federal tax (no state income tax): $20,677 (effective tax rate 16%; marginal tax bracket 24%)

Non-taxable income: $61,883
  • Non-taxable LTD benefits: $54,000
  • Non-taxable SSDI benefits: $3,372
  • Tax-exempt interest: $1,051
  • Qualified dividends: $3,460

Assets:
  • Taxable investments: $294,497
  • Traditional IRAs: $118,829
  • Roth IRAs: $62,663
  • (monthly cash flow of $7000 that usually goes into taxable investment account)

Suggestions? Recommendations? Information that's relevant that I need to know to make a decision?

MDM

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Re: Should I be donating cash vs. appreciated securities vs. DAF?
« Reply #1 on: March 07, 2019, 07:19:22 PM »
You might donate appreciated securities to a DAF every so many years.

Assuming you have a standard deduction of $12.2K, there is no tax benefit until the sum of charitable contributions plus other itemizable deductions is above $12.2K for a given year.

Qualified dividends aren't tax free, just taxed at lower rates than ordinary income.

seattlecyclone

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Re: Should I be donating cash vs. appreciated securities vs. DAF?
« Reply #2 on: March 08, 2019, 06:45:48 PM »
The tax code definitely treats gifts of appreciated securities better than the donation of cash. A DAF will gladly take a big donation of stock that you can liquidate and pass around in smaller amounts to individual charities. Most charities don't make direct stock donation quite as easy as it is to pass the money through your DAF. Furthermore as MDM said, the DAF lets you decouple the year of the tax deduction from the year the eventual charity gets the funds, letting you itemize with a big donation one year and not any the next.

Catbert

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Re: Should I be donating cash vs. appreciated securities vs. DAF?
« Reply #3 on: March 09, 2019, 09:20:13 AM »
Appreciated stock/mutual funds to a DAF for all the reasons outlined above.  I'll add that at least with the Fidelity DAF you can gives to charities out of your DAF anonymously if you wish.  That has kept me off mailing lists which is worth it.

Dr Kidstache

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Re: Should I be donating cash vs. appreciated securities vs. DAF?
« Reply #4 on: March 09, 2019, 09:41:12 AM »
Okay, sounds like a strong recommendation to start a DAF.
Any recommendations for DAFs that can take real assets in addition to appreciated securities? I'm anticipating that I will inherit some real estate and other real property from my parents that I might be interested in contributing in the future. There are so many DAFs out there and they all seem to have roughly the same fees.

CanuckExpat

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Re: Should I be donating cash vs. appreciated securities vs. DAF?
« Reply #5 on: March 09, 2019, 10:23:03 AM »
Vanguard Charitable can receive "complex" assets and I believe that includes real estate, on a case by case basis: https://www.vanguardcharitable.org/03_clients_contribute_complex_assets
The alternative for real estate that you inherit would be to liquidate it shortly after you receive it, since I believe the cost basis would be moved up to fair market value at the time you inherit it. Take that statement with grain of salt as I'm not an expert

We have been pretty happy with Vanguard Charitable. As you said, the fees are all roughly the same for all of them. If you already hold your appreciated shares with Vanguard, I think it's slightly easier and quicker to do the process with them, but it is probably easy either way.
The only disadvantage with Vanguard Charitable is their higher minimums: $25,000 initial contribution, $5,000 for additional contributions, and $500 minimum grant at a time to the charity. Most of these are also advantages, since it "forced" us to donate more, and with the changes to the tax code, it makes the most sense now to make subsequent contributions more than $5,000 anyways. The $500 minimum grant to charities also helps reduce expenses for the charities, and for the DAF.


Glad to hear your LTD battle is done, that must be a relief, and really glad to hear you are looking to DAFs. We have been really happy with the DAF process. There is a nice psychological aspect when the funds you know are destined for charity are already there.

Dr Kidstache

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Re: Should I be donating cash vs. appreciated securities vs. DAF?
« Reply #6 on: March 10, 2019, 12:46:12 PM »
Glad to hear your LTD battle is done, that must be a relief, and really glad to hear you are looking to DAFs.

Thanks, @CanuckExpat! It's going to be an adjustment to live without the constant harassment, threats, and stress. But now that I don't have to worry about receiving benefits month-to-month anymore, I can stop being so tight-fisted and better match my spending to my values. I can't be on the front lines (so to speak) of serving others anymore but I can use some of the evil LTD empire's money to make a difference.

jodelino

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Re: Should I be donating cash vs. appreciated securities vs. DAF?
« Reply #7 on: March 11, 2019, 12:05:36 AM »
For what it's worth, I opened a DAF at TIAAcharitable.org in early 2018 and I've been really happy with it. (I have a 401K at TIAA, but anyone can open an account at TIAAcharitable). The minimum contribution is $5,000, and the minimum grant is $50. My opening contribution to the DAF was about $21,000 of appreciated stock (so below the Vanguard minimum), and I've "recommended" grants as small as $100, also below the Vanguard minimum. The website is easy to use, and I can give anonymously, or with my name only, no address, and thus stay off mailing lists, as Catbert points out.

With the new tax laws, we plan to contribute to the DAF in years in which we itemize deductions. I just realized, when doing my 2018 taxes, another benefit of the DAF: starting in 2019 we will have a lot fewer charitable receipts to tally up (while giving away more due to the tax advantages of donating appreciated stock).

Catbert

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Re: Should I be donating cash vs. appreciated securities vs. DAF?
« Reply #8 on: March 11, 2019, 10:46:54 AM »
Okay, sounds like a strong recommendation to start a DAF.
Any recommendations for DAFs that can take real assets in addition to appreciated securities? I'm anticipating that I will inherit some real estate and other real property from my parents that I might be interested in contributing in the future. There are so many DAFs out there and they all seem to have roughly the same fees.


If the real estate isn't something your really want, sell NOW.  The basis would have set at the date of death so no/minimal capital gains if you sell now.  Same for securities that weren't in an IRA/401k/similar.