Maximize the Impact of your Charitable Giving with a Donor Advised Fund

According to Giving USA, charitable donations in the U.S. grew 4% in 2021 to $485 billion, a new record.

For our clients who are charitably inclined, we suggest considering the use of a Donor Advised Fund or “DAF”.

This great tool allows you to manage your charitable giving in a simple and tax efficient manner.

A primary benefit is that you immediately qualify for the tax benefits of making a charitable donation when you contribute assets to your DAF while you can choose to direct distributions from the DAF to your favorite charities over time.

Another benefit is that running your donations through your DAF can simplify both your record keeping and gift giving.

Unlike with a private foundation, there are no complex and costly start-up and ongoing financial reporting requirements.

Making Contributions to your DAF.

Most DAF accounts are held at community foundations or at charitable arms of brokerage firms like Fidelity, Schwab and Vanguard. Colorado Capital Management maintains a DAF at the Boulder Community Foundation. Account minimums and fees at these organizations can vary widely, so do your due diligence.

Once inside the DAF, fund assets grow tax free to support distributions.

You can contribute to your DAF using either cash or in-kind donations of marketable securities, and in some cases privately held personal, business and real property.  

Most clients maximize the potential tax benefits of their contributions by using highly appreciated assets. This enables the donor to avoid ever having to pay taxes on those gains. 

However, for donations that represent more than 30% of your adjusted gross income, larger tax deductions may be possible with gifts of cash (up to 60% of AGI). 

All contributions to a DAF are irrevocable, meaning once you contribute the funds, the assets cannot be returned to you.  

Donor Advised Funds Investment Options.

You can typically direct how the funds you contribute and hold in a DAF are invested.

Different charitable organizations offer different options. 

Community Foundations may offer very limited options, but placing funds with them helps generate fee income to support their  operations.  

Brokerage-firm related funds typically offer more extensive options, particularly for larger accounts.   

Some specialty organizations, such as Impact Assets, even allow fund holders to direct funds into private (non-traded) impact investments.

Many organizations, including  Schwab Charitable, allow an investment advisor, like Colorado Capital Management, to manage the investment portfolio on your behalf.

Directing Distributions from your DAF.

 Although you no longer own the assets contributed to a donor advised fund, you can typically direct how and when those assets are given to your preferred charitable organizations.

You can request distributions to your favorite charities and foundations over time as you please, either anonymously or with recognition.  

Many custodians have a minimum for distributions, though that can be as low as $50. 

You can also typically select one or more successors to continue making these distribution decisions after you are deceased or no longer involved.   

Keep in mind that contributions to your DAF qualify for potential tax deductions, but distributions from your DAF do not. 

Income Tax Savings.

We particularly like DAFs for their tax planning benefits.

Because contributions are deductible when you contribute to the fund, you can group these contributions together to provide larger tax benefits in a specific tax year. This strategy is also known as charitable “bunching” or “stacking”.

With the Tax Cuts and Jobs Act increasing the amount of the standard deduction while limiting property tax and mortgage interest deductions, many people are finding it harder to itemize their deductions.  

If you fund your DAF with multiple years of charitable contributions and exceed the amount of the standard deduction within one tax year, you can take advantage of higher itemized deductions for that year and resume taking the standard deduction in the following years.

Bunching your contributions is also beneficial in a particularly high-income year or if you are looking to offset taxes generated from a Roth conversion.

Graph demonstrating how bunching contributions in your Donor Advised Fund increases charitable giving

The example above is from the Truman Heartland Community Foundation. It illustrates how bunching your contributions together every three years can significantly increase tax savings.

A donor “bunches” their contributions by putting three years’ worth of contributions in the first and fourth year.

This way they benefit from taking higher itemized deductions every three years and in the following two years, they are taking the standard deduction.

In this example the donor had an additional $13,900 dollars in tax deductions every three years.

This is an efficient way to maximize the tax benefit of charitable contributions.

In the event that you are not able to use all of your charitable deductions in a given year, they may be carried forward for up to five years.             

Estate Planning

DAFs can also be used as an estate planning tool to continue your desired charitable legacy.

The DAF would need to be established in advance with the chosen custodian but is not required to be funded at that time.

The DAF would then be designated as the beneficiary of a brokerage or IRA account. Upon death, the assets of the account pass tax-free into the DAF.  

The successor advisor(s) would be pre-established with the custodian for the DAF. The successor advisor can then request grants in your name to various charities over time.

Taxes, estate planning, and charitable contributions are all important pieces of a comprehensive financial strategy.

Incorporating a DAF into your strategy may be a great tool to meet potential goals.

We are happy to discuss how a DAF might fit into your personalized financial plan. Contact us today for more information.

Happy giving!

Financial Advisor | + posts

Erica is passionate about providing purposeful advice to help clients enjoy a meaningful life.

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Jason Black, Financial Advisor (CFP)

Jason Black, CFP ®

With a drive to live purposefully and passionately, Jason focuses on helping clients to live in abundance.

Jason is a partner and senior advisor at Colorado Capital Management.  He brings more than 15 years of varied experience working in the financial services industry. He joined CCM after a long search to find the perfect firm that aligned well with his values and mission. Jason is passionate about helping individuals and families live abundant and intentional lives. He is proud to be part of a Certified B Corporation, doing meaningful financial and investment planning for clients, while also focusing on socially responsible business practices and making a positive impact. As a Chartered SRI CounselorSM, Jason has a strong background and keen interest in sustainable investing and enjoys helping clients understand the merits of this approach. Jason is also a Certified Financial Planner™ and has a bachelor’s degree in business administration from the University of Colorado. 

Before joining CCM, Jason worked with Jackson National as a consultant for financial advisors. He helped create meaningful connections with families, creative asset allocation strategies, and tax-advantaged retirement-income solutions. During his tenure there he worked with over four thousand financial advisors across the country, was recognized multiple times as consultant of the year, and also managed a team of twenty-five individuals. 

Jason is happily married to his wife, Bridget, of thirteen years, who he met while in college at CU. Together they have a son and daughter, and a Frenchie named Coco Disco. They live in the Whisper Creek neighborhood of Arvada. When Jason is not at work, he and his  family can often be found making turns in Summit County, wakesurfing in Glendo, WY, cooking, dancing and traveling.

Erica Loughrey, Associate Financial Advisor

Erica Loughrey

Erica is passionate about providing purposeful advice to help clients enjoy a meaningful life.

Erica is an advisor at CCM. She joined the firm in 2021, fulfilling her desire to work for a values-based company with a deep commitment to making an impact. She moved from her hometown of Anchorage, Alaska and quickly fell in love with the sunny and beautiful state of Colorado. She brought with her prior experience as a para-planner and is delighted to be engaged in a profession that empowers individuals to flourish financially. She believes strongly in exceptional client service and creating lifelong generational relationships.

In 2022, she accomplished two of her major career goals, finishing her master’s degree in financial planning (MSFP) and earning her Certified Financial Planner™ designation.

Erica enjoys spending time outdoors and traveling to exotic locales. In her free time, you can find her out skiing, hiking, scuba diving, practicing yoga or jetting off to new places to explore. She has a never-ending list of travel plans, having already visited over 20 countries, and feels lucky to have so many wonderful opportunities and adventures.

Lee Strongwater, Senior Financial Advisor

Lee Strongwater, WMS

An entrepreneur and world traveler, Colorado Capital Management vice president and co-owner Lee Strongwater brings a global perspective to investments and life planning.

For more than 15 years, Lee has passionately assisted clients with their financial planning and portfolio management needs. He especially enjoys helping them live more meaningful lives and invest in ways that are aligned with their values. Lee holds a bachelor’s degree in political science from the University of Colorado and a master’s degree in international affairs from Columbia University. He also holds the Wealth Management Specialist (WMS) certification.

Before joining Colorado Capital Management, Lee was a managing partner at Strongwater-Schott, a fee-only investment management and financial planning firm in Denver. Prior to that, he was an entrepreneur who helped start and manage several small firms, including a children’s product company that went public in 2007.

Lee is an active volunteer for several organizations. He is a past President and current member of the Board of Directors for the Boulder Jewish Community Center, an organization that is highly respected on both a local and national level. Lee is also on the Investment Committee of Girl Rising-Global Education, a venture philanthropy fund that invests in social entrepreneurs with culturally-relevant ideas. The fund’s investments promote gender equality and improve educational outcomes for girls and boys living in poverty in Kenya and India.

Lee is married and has two daughters. He enjoys hiking, skiing, traveling—mostly to Mediterranean countries—and trying out new recipes from his journeys. When he’s not on the go you can find him engrossed in a book.

Steve Ellis, Senior Financial Advisor

Steven Ellis, CFA

Steve Ellis has spent his career making an impact, so it’s not surprising that Colorado Capital Management’s founder and president launched the firm’s entry into impact investing.

He brings over 30 years of experience as a financial advisor to high net worth clients. His early work included teaching college courses in accounting and finance, consulting for a major accounting firm, and researching and acquiring investments as the chief due diligence officer of a leading national financial planning firm. Since 1989, he has advised individual and institutional investors on the management of their wealth. Steve is a Chartered Financial Analyst (CFA), holds a business degree from the University of Colorado, magna cum laude, and a master’s degree from Cornell University.

Steve launched the firm’s entry into impact investing in 2012 and is committed to helping build the field. Steve is a passionate speaker on the topic. He has taught about impact investing at various conferences and classes around the country, including as a past faculty member at Middlebury Institute of International Studies. He is listed in the Who’s Who in Impact Investing.

Steve is married, with two daughters, enjoys hiking, biking, skiing, tennis and bridge, and is actively involved in the community. He has served on numerous boards and committees for a wide array of nonprofit organizations, including the Boulder JCC, Rose Community Foundation, Jewish Family Service, and Friendship Bridge. His passion for impact and community service helped lead Colorado Capital Management to become a Certified B Corporation and to build a strong culture of volunteerism and philanthropy.