Case Study: Donor-Advised Funds
Michael and Katelyn Connor’s adjusted gross income is projected to be $200,000. With a total net worth of $2 million, including qualified retirement accounts and other investments, the couple will be faced with a $43,000 income tax bill this year.
The Connors’ accountant recommends creating a Donor-Advised Fund (DAF) for charitable giving. By transferring $50,000 worth of appreciated securities to their DAF, Michael and Katelyn avoid the capital gain on the assets and can deduct the gift as a charitable deduction against their adjusted gross income.
Michael and Katelyn will use their new DAF to engage and educate their children about the importance of charitable giving. They include their children in the process of granting their funds and also allow them to make recommendations for a portion of the DAF’s annual distributions. The Connor children are named
as the successor grant advisors and will assume the grant making upon Michael and Katelyn’s passing. The $50,000 contribution to the DAF provides a $50,000 income tax deduction and is projected to provide a current income tax savings of $14,000. Michael and Katelyn also avoid $6,000 in state and federal capital gain taxes on the highly appreciated securities transferred to their DAF, realizing a total tax savings of $20,000.
This is a case study and is for illustrative purposes only. Actual performance and results will vary. This case study does not constitute a recommendation as to the suitability of any investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted. This case study does not represent actual clients but a hypothetical composite of various client experiences and issues. Any resemblance to actual people or situations is purely coincidental.