Morgan Stanley
  • Wealth Management
  • Oct 19, 2020

Donor Advised Funds: A Tax-Efficient Way to Manage Your Giving

There’s more to charitable giving than you may realize. Here’s one method that provides flexibility and can help maximize your impact.

When it comes to helping others, people are opening their wallets—wide. Charitable giving topped $449.64 billion in 2019, making it one of the highest years on record measured in current dollars and the second highest level ever after adjusting for inflation, according to Giving USA.1

While you may think of charitable donations as writing a check or transferring assets to a nonprofit, there’s another option. If you’re planning to give to charity before the end of the year but need more time to decide where to direct those assets, a donor advised fund (DAF) may be a good option. Administered by a    501(c)(3) public charity, a DAF manages charitable donations on your behalf while giving you important—and immediate—benefits.

How Donor Advised Funds Work

DAFs offer several important advantages. Because DAFs are public charities, you’ll receive the full tax benefit when you contribute to the fund, even if:

  • You want to delay decisions on where your money is going in order to develop a more thoughtful and impactful giving strategy
  • You choose to give to qualifying public charities in installments over time

Let’s say you hold securities that have appreciated significantly. By donating the securities to a DAF, you can eliminate the potential capital gains tax hit, while you are granted extra time to decide when and where to make charitable gifts. Between the time you make a donation to a DAF and when you finalize your giving strategy, your assets can be invested, with the potential to grow tax-free.

DAFs can also offer you an efficient way to donate more complex assets. For example, if you want to donate real estate, art, automobiles, or other items that may need to be appraised, transferred, or possibly even sold before donation, a DAF can smooth the process and provide you with the necessary resources and documentation to do so.

DAFs streamline your paperwork and administer disbursements, providing you with the necessary documentation for deductions, as well as handling any reporting or filing requirements to document the gifts. You will also receive regular statements listing gifts, grants, fees, and investment performance for your records.

Morgan Stanley offers a suite of philanthropic services through the Morgan Stanley Global Impact Funding Trust (MS GIFT) which has a team of professionals who can work with your Financial Advisor to help manage and administer such assets.

Immediate Financial Benefit, Long-Term Control

As stated above, DAFs allow you to control the amount and timing of grants to qualifying organizations, including other tax-exempt public nonprofit organizations, U.S. religious organizations, and U.S.-qualified domestic and foreign charities. The DAF may also consider other domestic and foreign establishments that do not qualify as U.S. public charities, though it may come at an additional cost.

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DAF investment options typically include separately managed accounts, mutual funds, and exchange-traded funds. Morgan Stanley GIFT's Investing with Impact pools enable clients to align investment decisions with impact priorities across their portfolio.  The Investing with Impact pools available through Morgan Stanley GIFT employ highly regarded third-party investment managers with demonstrated experience in generating positive environmental and social impact.

Most DAFs require a minimum initial contribution and minimum grant recommendation. For example, Morgan Stanley GIFT's minimum initial contribution is $25,000 and the minimum grant recommendation is $250. For individuals, the maximum deduction when gifting cash to a DAF is 60% of adjusted gross income (AGI), although you may carry forward deductions exceeding AGI limits for up to five years. Families and organizations may also make gifts to the DAF. Note: All donations you make to a DAF are irrevocable.

Giving Back as a Family

DAFs give you the flexibility and time to involve family members in your strategic giving, providing you the opportunity to share the causes that are important to you and learn more about those other family members support. You may name a successor to continue managing your giving plan when you are no longer able to do so. And, if you already have a DAF, you may open a “NextGen DAF” with a lower minimum investment, giving your children and grandchildren the ability to give to their own causes and showing them the importance of giving.

Is a Donor Advised Fund Right for You?

DAFs are an accessible way to enjoy immediate tax benefits and are among the easiest and most tax-advantaged ways for you to facilitate your charitable giving. They are especially useful in years when you are seeking a charitable deduction, but also desire more time to finalize a giving strategy. For example, like many taxpayers affected by the 2017 U.S. tax reform, you may be seeking additional deductions before year end. By donating to a DAF by Dec. 31st, you could achieve your deduction target.

Consult your Financial Advisor to explore whether a DAF is right for you, as well as to create a structured giving approach that maximizes your impact, while giving you more flexibility to help realize your legacy.

1Giving USA 2020: Total estimate charitable giving in the United States rose 4.2 percent between 2018 and 2019 (2.4 percent, adjusted for inflation), to $449.64 billion in contributions. Adjusted for inflation, charitable giving reached its second highest level ever,” Giving USA. June 14, 2020. Retrieved from: https://givingusa.org/giving-usa-2020-charitable-giving-showed-solid-growth-climbing-to-449-64-billion-in-2019-one-of-the-highest-years-for-giving-on-record/

 

The Morgan Stanley Global Impact Funding Trust, Inc. (MS GIFT) is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended that sponsors a donor advised fund program. MS Global Impact Funding Trust (MS GIFT) is a donor advised fund. Morgan Stanley Smith Barney LLC provides investment management services to MS GIFT. Back office administration provided by RenPSG, an unaffiliated charitable gift administrator.

Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning, charitable giving, philanthropic planning and other legal matters.

While we believe that MS GIFT provides a valuable philanthropic opportunity, contributions to MS GIFT are not appropriate for everyone. Other forms of charitable giving may be more appropriate depending on a donor’s specific situation. Of critical importance to any person considering making a donation to MS GIFT is the fact that any such donation is an irrevocable contribution. Although donors will have certain rights to make recommendations to MS GIFT as described in the Donor Circular & Disclosure Statement, contributions become the legal property of MS GIFT when donated. The Donor Circular & Disclosure Statement describes the risks, fees and expenses associated with establishing and maintaining an MS GIFT account. Read it carefully before contributing.

Although the statements of fact and data in this material have been obtained from, and are based upon, sources that the firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. This material is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

© 2020 Morgan Stanley Smith Barney LLC. Member SIPC.

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