It’s Tax Time: How the largest tax law change in 20 years will impact you

By: Michele Suchovsky

It’s tax season. A busy time of gathering together records, statements and sorting through all of your financial decisions in 2017. It is also a time to start thinking about your 2018 taxes, especially as the Tax Cuts & Jobs Act of 2017 goes into effect. This bill was the largest sweeping change to tax law in over 20 years and will impact financial decisions of many taxpayers, including charitable giving for those who itemize their deductions.

The Standard Deduction.  One of the biggest changes under the new tax law is the change increasing the standard deduction from $6,350 to $9,200 for single filers and from $13,000 to $24,000 for couples filing jointly.  In practical terms, this means that you may have itemized your deductions in 2017, but for 2018 simply will use the standard deduction (and not deduct your gifts to charity).

Enter “Charitable Stacking” and Donor Advised Funds.  In simplest terms, charitable stacking is simply giving in one year what you would normally give over several years. For example, if you normally give $5,000 per year to charity, using stacking, you would give $25,000 in year one and nothing in years 2-5 and then itemize your tax deductions in Year One and take the standard deduction in Years 2-5. Now, you are probably thinking: “This sounds like a terrible idea!  I don’t know where I want to make a gift five years from now. “

That is where a Donor Advised Fund (or DAF) comes in.  A Donor Advised Fund is a vehicle for donors to make a charitable gift to an investment vehicle which is also a public charity.  The donor then receives a charitable deduction in the year that she made the gift to the fund and can then recommend grant-gifts to charities from that fund.    From my example above, the donor can give $25,000 in year one to her charitable fund and itemize her tax deductions and then make grants from that fund to individual charities over the five year time span.  An important note:  when a donor makes a gift to his DAF, that gift is now the property of the DAF.  While the donor can make recommended grants to charities from the DAF, he no longer owns the money and cannot take it back.

Where does one find a donor advised fund?  These funds are actually very common and growing every year.  In fact, according to The Chronicle of Philanthropy, the public charity raising the most from individuals, foundations and companies in 2017 was the donor advised Fidelity Charitable Gift Fund.

If you are thinking about a DAF, here are some questions to consider:

  • How much money does the donor need to initially invest to create a donor advised fund? For investment firm public charity funds like Fidelity, Vanguard and Schwab, the initial contribution can be as low as $5,000 to as much as $25,000 in an initial investment to establish a DAF.
  • How much is the minimum recommended grant to make a disbursement to charity? Most funds provide a minimum gift disbursement of $50-$250, but some can be higher than that.   This means that a donor can make a grant from the fund to an individual charity for as little as $50.
  • Do you want your gift to a fund to support a particular world view? For example, the National Christian Foundation in Grand Rapids, Michigan offers a Christian world view DAF option and limits grants to charities that fit those mission guidelines.    There are also funds that support social investing initiatives, environmentally-conscious investing and others.
  • What is the fund’s succession and distribution policy? What happens to your fund if you pass away or become incapacitated or if you stop making grants from your fund?  Most accounts have spend out rules and default succession plans that you, as the donor, agree to when you set-up your donor advised account.
  • How much interaction and help do you want from your fund manager? Community foundations, including the Grand Rapids Community Foundation, offer donor advised funds as well.   The benefit with partnering with your community foundation is that the staff is there to support you as the donor.  And they are experts in the community, so foundation staff can really be an asset as you develop and build a giving strategy.  Funds through investment vehicles like Fidelity Charitable Gift Fund are national in scope and support is more general in nature and limited to articles and webinars.

Donor advised funds are not for everyone, but are a great option if you are thinking about implications for the new tax law or how to create a philanthropy strategy for today and into the future.

The Grand Rapids Student Advancement Foundation (GRSAF) is a recognized public charity and can and does receive donations from donor advised funds.  If you would like to learn more about making a gift to GRSAF through your donor advised fund, please email or call Michele at 616-988-5430 ext 6 or [email protected] or Cindy at 616-988-5430 ext 3 or [email protected] at the foundation offices.

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