Charitable giving is an important piece of the overall wealth management strategy for many of our clients. Before partnering with Morgan Rosel, a high income earning client had been donating cash and/or selling stock every year to support numerous charities. This client had owned the investments she was donating to charity for a substantial amount of time and therefore generated capital gains tax with the sale of this stock each time she donated. This added to her overall tax liability and reduced the total amount that could be gifted.
Our solution advised the client to discontinue giving cash to their charities and establish a donor advised fund for future charitable donations. A donor advised fund is like a charitable investment account, set up solely to support charitable organizations. The client donates an appreciated investment to their donor advised fund. The donor advised fund then sells the investment, reinvests the proceeds into a diversified pool of investments, and awaits instructions to distribute to the charity of her choice. By routing their donation through a donor advised fund they are able to avoid paying tax on the gain of the donated investment, yet receive a charitable deduction on the date of transfer of securities to the donor advised fund. We helped her select the most advantageous investments to go into the account and facilitated the transfers.
By selecting assets with a low cost basis to donate to her donor advised fund, the client realized an immediate tax deduction and reduced tax liability. The investments are continuing to grow tax-free allowing our client to donate significantly more each year to the organizations she supports. Our strategy has reduced the overall tax liability for our client while simultaneously increasing her gifting power, creating a win-win situation for both our client and her favorite charities.
Nothing in the above case study should be construed to be specific investment or tax advice.
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