By Dr. James M. Dahle, WCI Founder
Katie and I have always been givers. We think giving is one of the five critical parts of our financial lives; it is just as important to give well as to earn, save, invest, and spend well. We believe that giving not only benefits those we give to, but also makes us better people. It helps remind us that we are only on this sphere temporarily and that our hearse will not have a trailer hitch. We are just stewards of the resources we are entrusted with during our very limited time on the planet. Giving helps us to keep money in its proper place in our life—as a tool, not a goal and the means rather than the end. We're less selfish, happier, and perhaps even wealthier as a result of this practice. We've been blessed with a very high income and so feel an obligation to continue to pay it forward and are proud that for the last two years we've given away more money than we've spent (not counting taxes and savings).
Our giving takes on many facets. We give directly to family and friends in need. An example of this is the donation we're making each year to the college funds of our nieces and nephews. We give through the WCI Scholarship. We give to our church. We also give to public charities. One nice thing about giving to an official 501(c)3 is that our gifts become tax-deductible, at least in any year when we itemize our deductions. We did not do that in 2018, so we ended up lumping our charitable contributions into 2017 and 2019 and taking the new higher standard deduction for 2018, but anticipate itemizing every year moving forward so long as the tax code doesn't change significantly.
When we have appreciated shares, we like to use those for our charitable giving. By doing this, our capital gains are continually flushed from our taxable (non-qualified) investing accounts. There's no waiting period after donating shares. You can buy back those shares the very next day if you like. However, by combining this practice of donating appreciated shares with tax-loss harvesting, we are able to invest in a taxable account in an incredibly tax-efficient way. If I could just get the Vanguard Total Stock Market Index Fund and the Vanguard Total International Stock Market Index Fund to quit sending me dividends (in our case taxed at 23.8%), it would be even more efficient.
The “Jerk Move” of Using a DAF
In the past, I've criticized Donor-Advised Funds (DAF) users (primarily my WCI Network partner Physician on FIRE) for pulling a “jerk move” by contributing to a DAF with a plan to make future donations from it. My criticism isn't so much donating to charity (as you can see, I'm a big fan of that) but simply that the donor gets a tax deduction as soon as they put the money in the DAF, even though the charity might not actually receive any money for decades! Up until this year, we never saw any reason for us to use a DAF. Not only did we prefer to actually give money to charities rather than invest it in mutual funds while giving ourselves a pat on the back, but we aren't big fans of paying AUM fees to DAF providers, the most prominent of which charge 0.60%, up to 20X the expense ratios on our mutual funds.
Why I've Become a Jerk Decided to Use a DAF Anyway
However, I changed my mind this year. No, I haven't decided to pull a jerk move (mostly), but I've become more appreciative of some of the other benefits of a DAF. We used to use credit cards or checks to give to charities. But we wanted the tax receipt. We figure if we're going to give to charity, we might as well get the tax benefits of doing so. In reality, by letting us give with pre-tax dollars, it allows us to give more. But in order to get a tax receipt, you have to give them a name and address. It turns out even if you request to remain anonymous with your gift, they still start pounding your mailbox with what we call “charity porn”. You know, those glossy magazines about all the good they're doing. Well, we already know they're doing good, that's why we gave them the money in the first place. We want that money to go toward their primary mission, not toward glossy magazines and stamps. A DAF allows us to donate completely anonymously so more of our gift can go toward a good cause rather than killing trees and filling up our recycling container. Note that you can choose whether to make each individual gift anonymous or not. You can tell the charity nothing, give them the name of your DAF, or give them your name and address. The choice is yours.
One downside of a high income combined with financial literacy is you'll have enough money to completely ruin your kids if you're not wise. A DAF can help you avoid doing that.
A DAF also makes giving super convenient. We chose to use Vanguard Charitable because their fees are no higher than anyone else's and it was super simple to link it to our taxable investing account. Note the site is separate, so there is a different login, kind of like the Vanguard Small Business site for those of us with Vanguard Individual 401(k)s. On the Vanguard Charitable site itself, you can search for charities and learn more about them. You can then save them to your list of favorite charities, so you only have to look them up once. Now, when we go back and donate to them again, it is just a few clicks with the mouse. If you want some of your donation to go to a specific account at a local congregation of your church (like a missionary fund) you can just choose “other” on the drop-down menu and type in exactly how much of the donation goes where and input your name/number and congregation name/number in the free text box.
But wait, there's more. It's not only convenient on the donation side, but also on the contribution side. Our plan most years is to donate appreciated shares. At the beginning of 2019 when it was time to make some donations, we didn't really have any appreciated shares thanks to the December 2018 bear market. I had a few shares of the VXUS ETF that had a small gain, but it just felt like selling low to use that for our charitable giving this year. There weren't enough shares for all the giving we wanted to do anyway. So we used cash for our donations this year. I opened the DAF on a Sunday afternoon and directed money to be transferred from our Vanguard Municipal Money Market Fund to our Vanguard Charitable account and by Tuesday morning it was in place ready to be distributed to charities. I'm confident it will be just as easy to use appreciated shares for future donations as those MMF shares. Unless you've tried to use shares to donate to charity or pay tithing in the past, you have no idea how much easier this is to do. Plus, there's no waiting around for days/weeks not knowing exactly what price the shares are going to be sold/transferred at. It should all take place at end of day pricing like any other mutual fund transaction. Super, super convenient.
The DAF keeps track of all of your donations, so there's no more trying to track down a bunch of receipts to input into Turbotax. It's all combined into one single donation for tax purposes, a donation to your own DAF. Very convenient.
I was going to put together a few nice screenshots of the process for this post, but every page always seemed to have some personal information on it like our account numbers or the name of our DAF, so you only get a few. The first one is the donation page for one of the charities:
Vanguard Charitable DAF
Followed by the summary page for that same charity.
As you can see, it's just like most other online financial transactions, no big deal.
The Downsides of a Donor-Advised Fund
So what are the downsides? Well, there are several.
- The minimum initial contribution at Vanguard is $25K with $5K for subsequent contributions. No big deal for us. We give a multiple of that away every year. Even if you don't, as long as you have $25K that you plan to give away eventually, you can get it open and then decrease how much is in there by not replacing donations. If that's too high-roller for you, consider Fidelity's DAF which has a $5,000 initial donation.
- The minimum donation is $500. If you give $10 at a time to charity, this really isn't for you. If a $50 minimum would work, again, consider Fidelity's version. You also can't use the DAF to donate stuff you no longer need, so we'll still need to keep track of those receipts separately using something like Turbotax It's Deductible.
- While you can have a co-advisor on the fund (Katie and I are co-advisors), you cannot name your kids as successor advisors until they turn 18. No big deal, we just picked someone else we trust for the next few years.
- There is an AUM fee, 0.6% per year, or $600 for $100K. You start getting a break at $500K on that fee (it drops to 0.35%). No big deal. I'm not planning on leaving much money in there year to year and 0.6% of not very much money is almost trivial and well worth the convenience.
- There is a minimum balance fee charged if you keep less than $25K in there. I'm not very happy about this, since my plan was to NOT keep anything in there. That's the jerk move, remember? Fidelity doesn't require a minimum balance, why does Vanguard? It wasn't entirely clear from the website what the low balance fee was, so I had to call. Well, Vanguard Charitable tells me it is $250 and assessed every February (confirmed on two separate phone calls). Since $25,000 * 0.6% = $150, i.e less than $250, I've opted to leave $25K in there through February. Honestly, I feel a bit like a jerk doing it, but hey, I guess that's life. But if you contribute $25K in there at the end of January and donate it the first week of March, you'll never pay the low-balance fee and you'll only pay something like $12 to Vanguard in AUM fees. To be fair, Fidelity charges a minimum fee of $100 per year, so for my purposes, Vanguard will be cheaper fee-wise.
Our Giving Process
Prior to meeting with the kids, Katie and I have already decided the total amount we were going to give to charities after our usual church donations, niece/nephew 529 contributions, and friend/family giving. The smackdown was deciding which charities to support and how much to give to each of them.
First, we go around the room and everyone had a chance to name the charities they wanted to give to this year. This is always interesting. We usually end up with a list of 10-15 charities.
Next, we whittle the list down a bit. This is where it gets fun. One year I planned to select 5 from our initial list of 13 so our gifts wouldn't be spread too thin, but eventually gave up and we expanded that to 8. It was just too hard to cut it down any more. The three older kids, Katie, and I each got 5 votes. Unless you could talk someone else into supporting your chosen charity and using one of their precious five votes on it, we weren't giving them any money. It was fun to watch the kids try to talk each other into supporting their pet causes.
Now, we had to decide how much to give to each one. Each family member got three votes in this round and each vote was worth a chunk of money. So a charity that got four votes got four times the money that a charity with one vote got.
Finally, I had to log in to Vanguard Charitable and actually put the transaction orders in. Again, super easy, super convenient and I end up with a nice online, printable record of what we did that I can use at tax time and for reference next year at our charitable smackdown.
Naming the DAF
Part of opening a DAF is to give it a name. This was harder than I expected. Since we wanted to use it for anonymous gifts, at least part of the time, we didn't want our names on it. We didn't want to use our street name or White Coat Investor. We thought about naming it after one of our favorite peaks, but there are so many funds out there already named after mountains we thought there was risk of confusion. In the end, we named it after a verse of scripture that inspires us to give. Each year, that will serve as a reminder to us of the reason why our DAF exists and redirect our minds to the best uses of its funds. I hope you enjoy naming your DAF as much as we did.
Overall, using a DAF makes giving a lot slicker. The additional costs can be minimized without a lot of hassle, and truthfully, 0.60% isn't very different from the tax drag on that money if you left it invested in taxable. I really appreciate the anonymity and simplification, but I think for a lot of people a DAF actually causes them to give more than they otherwise would. I encourage you to sit down and reflect for a bit on your wealth and what it means to you and make a commitment to give some of it away to a cause you support. If you find this is also an important part of your financial life, consider opening a Donor-Advised Fund to facilitate the process.
What do you think? Do you already have a Donor-Advised Fund? Do you plan to open one in the future? Why or why not? Comment below!
I’ve always enjoyed giving to others more in need and organizations I believe in, however my take is very different. I came to this great country 20 years ago and have become FI, this would have never happened back home, I donate with after tax dollars and I don’t claim deduction. Yes, I could have donated more if I use pre tax dollars, but I think the reason I’m able to give is because of this country, with 20 trillion in debt and counting, I feel responsible to be part of it. Don’t get my wrong, I do use vehicles like HSA, IRAs, 401ks, etc to reduce my tax, but the money “given away” will always include the IRS.
What? You don’t think the 20-35% you pay in tax is sufficient for the government? You wish to donate more? Okay. Your money. Pretty unusual position though.
Funniest comment ever…Somewhere a politician is having a wet dream
Completely agree that giving is one of the key aspects of being financially healthy. We just transitioned to tithing 10% pre-tax (we previously tithed 10% of our take home pay). Probably should have been doing this all along, but it hadn’t really crossed our mind until the last year or so. Either way, it is a huge priority to us, and so we made the change.
I look forward to doing a DAF at some point once our taxable account is large enough to justify it. Given that we just paid down our student loans, we aren’t quite there yet, but I certainly hope to be in the next 12-15 months.
The majority of our giving goes to our church, but we certainly give to other charities as well. I am curious to know, what does your church think about getting charitable donations in this way? Have they given you any flack from the transition from cash to donating shares of funds?
TPP
The beauty of the DAF is that the church doesn’t receive the funds as shares, they receive it as a standard payment, presumably a check, which is sent from the DAF when the DAF liquidates a portion of your fund. This allows you to give to any 501c3 even if they’re not set up to receive shares or other novel donations.
I discussed with our church treasurer at the start. So when Fidelity Charitable sends our monthly pledge, the church office can properly classify it as no further deduction. ( No double-dipping. The deduction was already received.) This is not completely anonymous, but only one person knows the specific details. The pastor is not aware of specific level of giving.
Sometimes, we write a personal check for an additional purpose, such as supporting a youth mission trip. The church needs to keep these contributions separate. Our previous church created 2 accounts to keep this separate. Our current church uses software to keeping deductible and non-deductible contributions separate. Either way, churches seem to like regular, reliable, electronic giving. The bookkeeping has not been an issue. As commented above, the DAF removes the cumbersome need to contribute shares directly to the church. And for us, the hassle factor at tax time is greatly diminished.
No. My church leaves that sort of thing to me. “It’s between you and God.”
Can we talk more about the “being a jerk” portion of this article?
We started a DAF in the last 2 years with the plan of funneling all our giving through it, but also with the goal of allowing it to accumulate value over time, by giving away only 10% of the value of the fund each year that we continue to add to it. Our thought process is that this will in the long run allow us to give more money to charity. We have the DAF invested in equities with moderate to high risk to allow the most growth over time.
I recognize that this will lead to smaller donations in the first few years, but at some point you cross a threshold and start to give just as much from the earnings of the DAF as you put into the fund, and can potentially extend your ability to give generously to causes you care about.
Any particular criticisms to this approach?
There are some academic critics to this approach, but I think they are wrong. We allow all sorts of endowments to build funds for the future; no reason a DAF can’t. I prefer community foundations because I like working with other donors and sometimes I want suggestions on where my money should go (I might not know all of the charities I want to support on a given issue, and community foundation staff can help with this). Every community has a community foundation and most of them offer DAFs. But one reason I think setting some money aside is NOT being a “jerk” is that is allows you the flexibility to deal with a crisis moment.
Case in point. I have a DAF at a community foundation and my father and I are the advisors. We make a regular donation every year and usually grant 30-40 percent of it in that year (which is 6 to 8 times the private foundation payout rate). But by allowing some of it to sit and be invested, we were able to step in at a crisis moment on an issue we care about. For us, it was family separation at the border; for you, it might be comething else. But we were able to donate $5,000 to 8 different charities, screened with assistance from the community foundation. If we didn’t have the $40,000 “set aside,” and we had to rely on “new giving,” we would not have been able to make those gifts. So I think DAFs offer that great flexibility. I just prefer my local community foundation to the investment houses for my own personal giving.
Money given to charity now is worth more than money later. Would a charity rather have $50K now or $100K in a decade? Well, it’s really all the same. If they would rather have more later, they can invest it themselves.
While the money is sitting in the DAF it doesn’t do any good for anyone except those being paid to manage it.
Just to play devils advocate. There is always going to be charity in the world. If you could do more good by doing what no charity does and invest it wisely to grow the contribution by 6-7% real returns why not. Giving 100k in a decade will do more good for more people than giving 50k today. Its worth about 40k more in real terms after inflation. Don’t have to do the jerk move and get a tax write off, Just keep it in a no fee fidelity index fund if your worried about the financial piranha siphoning off money. However you may not get the self satisfaction that giving today may bring
That’s how Warren Buffett feels.
Welcome aboard my friend.
I think I started mine in 2002, seventeen years ago.
I don’t have the audience and impact that you and PoF do though so it didn’t influence others. I’m glad that you and he feel comfortable sharing a bit about your personal beliefs, values, and giving habits. That will no doubt magnify the good you do since you are leading by example.
Congrats on DAFing like the rest of us jerk movers!:). Best Christmas Gift we ever gave ourselves was starting our DAF.
I’d like to formally welcome you to the club.
That’s interesting about the Vanguard minimum fee. That isn’t spelled out anywhere. Last year, I moved > 90% of our DAF money from Vanguard Charitable Fidelity Charitable but we’re still above the minimum threshold. The expense ratios on Fidelity are as low as 0.015 whereas Vanguard’s previously started at 0.060, although I see they’ve come down to 0.035% since then. If you keep a 7-figure balance in a fund, the ER is as low as 0.020 at Vanguard.
Both charge a lower admin fee once you get to $500,000 balance, but the fee is only lower on the additional funds, not across the board. Fidelity’s fee drops to 0.3% as compared to Vanguard’s 0.35%.
Fidelity’s got an even easier site to navigate and make repeat gifts to the same charities, although Vanguard’s isn’t bad. Having freshly reviewed all the details on them, I’ll be keeping both. The simple manner in which I can gift from my Vanguard taxable account to the Vanguard DAF is the main reason I hang on to Vanguard.
I hadn’t thought much about the name. You do have the option of giving completely anonymously without even the name of the fund. That’s what we do for anonymous giving. We gave to 100 different charities based on readers’ requests last year and I haven’t received “charity porn” from a single one. My actual name is in the fund name, but we didn’t share the fund name with recipients.
Cheers!
-PoF
So is there a minimum fee at Fidelity of $100 no matter your balance or other requirements?
Yes. If your balance is less than $16,667, you’ll pay the $100 annual fee. That’s the “break even” point where 0.6% = $100. Below that, you pay $100, which is a higher percentage. Above that, you pay 0.6% which will be more than $100.
It comes out of the DAF balance of course, and you did get a tax break on that money. In a way, that makes it a lower fee, effectively, as compared to paying with cash.
How is the 0.6% calculated? For example, if I put $20,,000 in today and remove it by donating it one week after I put it in there, what do I pay?
1/52*0.6%*20,000= $2.31.
We set up our first Vanguard Charitable DAF this past December. We have always believed in giving generously and learned that this can allow us to be MORE generous. Here is why this works so well for us. By putting in over $100,000 (equal to about 1 1/2 yrs of our average deductible giving) we were able to reduce our income into the sweet spot we needed to get some of the QBI deduction that we would not have had otherwise. Reducing our taxes will give us more income to give from in the future. We had already given our usual giving for 2018 so this was all to be used for 2019/2020. Here is the really awesome part. We put it in at the end of December when the market was at a low point and the funds have now increased significantly. So, now we are giving away MORE than our usual average. In addition, I honestly think we will give more freely because that money is now out of our budget so we can give more generously without ever “feeling” it. None of this feels like a Jerk Move to us 🙂
Ahhh…the QBI deduction. Unbelievable how much of our financial lives it affects eh? Spent the whole day writing a post about it yesterday and didn’t even consider the merits of bunching to get it every other year. Fair play.
I think it does inspire some people to give more than they otherwise would because they have this “cool new toy” to do it with. PoF has made DAFs cool! Everybody wants one! If you give more with a DAF than without one, more power to you.
Here’s the other spin – we never thought we could do the new tax law “standard deduction” bc our giving made itemized deduction amount much higher. By doing large gift to DAF one year and then not itemizing the next, we can take the standard deduction that off year. We don’t have mortgage interest as house is paid off so that left only real estate taxes. Standard deduction is definitely greater than that amount. Again, frees up more to give.
That’s not so much a DAF thing though. You could do that with direct contributions to charity and still bunch.
True, but our church isn’t that large and many of the ministries we give to are also smaller so we wouldn’t want to confuse their budgeting by large gifts one year and zero the next. The DAF allows our monthly giving to stay consistent.
It must be a really small charity that one person’s donations would screw up their budgeting.
For those that may not be able to swing really large donations the way many FI docs probably can, and are still looking for some of the same features without the higher minimums that Vanguard has, I would suggest looking at Schwab Charitable. The minimum contribution to open a DAF is $5k, minimum additional contributions are $500, and minimum grants are $50. Fees are still 0.60%. Those figures put some of the benefits that WCI discusses in reach for individuals at many stages of their financial lives and giving journeys.
Again, let’s not steer everyone towards Fidelity, Vanguard, and Schwab, where the fees they raise go to support a financial powerhouse. They are good for certain types of donors, no question. But community foundations are a great option too. The fees are slightly higher, but they are going to support charitable activity in the community, and the staff of the foundation provides help on your charitable giving.
I wasn’t meaning to only advocate for the big firms, just trying to provide input that there can be a difference of 5-10x when it comes the contribution and grant thresholds.
Agree that a community foundation can have certain benefits that a larger entity can’t by definition emulate.
Sounds like Schwab is about on par with Fidelity in that respect. I’m sure it’s a fine place for a DAF.
Vanguard is still mutually owned. That’s a financial powerhouse I’m willing to support.
I looked into one local DAF but it had so many restrictions and idiosyncrasies it wasn’t worth it. I generally err toward big household name institutions when it comes to financial stuff unless I have a very good reason not to. I couldn’t see one in this instance. It’s just not worth running risks like this:
https://nonprofitquarterly.org/2017/07/31/checks-balances-community-foundation-teeters-edge-embezzlement/
Not to argue, but I don’t know that one bad story makes it “risky.” There are 800 community foundations and some of the old ones have been around for 100 years. I have DAFs at three of them. It’s pretty cut-and-dried situation and every one I know has pretty stringent safeguards in place, and most of them follow a self-policing accreditation process called National Standards. This is one story from one small community foundation. I don’t know where you are so I can tell you anything about your local one. But what I will say is this: If you notice online over the last year, there have been a number of stories critical of DAFs, both because of their growth and because of the “me-too” scandal at one large commmunity foundation — and almost all of those negative stories focus on the commercial providers because the “incentive” there isn’t charity, but rather maximizing assets under management. At least, that’s what the critics say. The critics of DAFs generally like community foundations, United Ways, Jewish Federations, etc. — the other charitable DAF providers. They are focusing their attention on the big financial powerhouses because Fidelity’s charitable gift fund is now the largest “charity” in the country. So this is getting people’s attention.
I think if you know the charities you want to support every year, or you have time to do the research on your own, then the financial providers are basically fine. They provide a very good, convenient, low-cost service and I know community foundations will often refer donors to the commercials if they already know what they want to do. But if you don’t know what you want to do, or you don’t have the time, or you want to work with other donors on local problems, or you want the fees to be going to actual charitable services and not to a bank’s profits, or you actually want help with your philanthropy (as if you had your own private foundation with a staff, but without the administrative costs), the commercials don’t provide that. That’s not a criticism — different donors have different needs. I like getting the advice, and joining forces with other donors in my local community to tackle a problem.
“If you actually want to help with your philanthropy….the commercials don’t provide that.”
I’ll guess we’ll have to agree to disagree.
I don’t have a problem with Fidelity being the biggest charity in the world so long as the donor/advisors actually distribute what is moved through the DAF. I view the DAF as a method of giving, not a place to store money. Thus the “jerk move” bit above. If you need help figuring out where to give your money, then hire whatever help you need. If you feel that using a local foundation somehow does even more good, then feel free. It’s a free country. But I’m not seeing some reason there for me to avoid the Vanguard/Fidelity/Schwabs of the world. I’ve already got accounts at all of them.
Has anybody (probably LDS forum members) set up a donor advisory fund with Deseret Trust, or know somebody that has? https://www.deserettrust.com/
They are “an integrated auxiliary of The Church of Jesus Christ of Latter-day Saints, and the First Presidency of the Church appoints the chairman and board of trustees.” My main charitable contributions are tithing.
I have my taxable and IRA accounts with TD Ameritrade (doesn’t offer DAF). I was looking into opening a DAF with either Vanguard, Schwab, or Fidelity and in my browsing stumbled across Deseret Trust. Thinking of looking just opening my account with them, but need to figure out more about fees, etc…
Considered it. Decided not to based on some of the restrictions there. 40% of the money you deposit there HAS to go to the church. https://www.deserettrust.com/donor-advised-funds?lang=eng
Plus the convenience of Vanguard and concerns about using a small foundation as discussed above with CF Advocate.
Thanks for a great post! We have been debating setting up a DAF for a few years now and were trying to choose between Vanguard and Deseret Trust. I think we will go with Vanguard. I did not know about the restrictions on where you can donate although 40% wouldn’t be too hard if I funnel my tithing through it. The flexibility, convenience, and costs gets Vanguard the nod.
I don’t know if you have had this problem but I have been transferring appreciated Vanguard securities for over ten years to the Church but the last two years have been more painful because I can’t get all my receipts for my donations from them and have had to make multiple phone calls to straighten it out and it appears the Vanguard DAF may be the solution. It sounds like you have not had issues donating to the various sub accounts to the Church (i.e. fast offerings, humanitarian fund, etc). Is that true?
I like your annual family donor meeting. We will have to give it a shot this year. In our will, we set up a large chunk of money to go to DAF (Was Deseret but now will be Vanguard) and our kids were required to get together once a year to distribute a portion of it after we pass away. They are now getting old enough to have some opinions and it would be good to get them in the practice of being more giving minded. Thanks for sharing and all you do.
While they always sent me a receipt when I ask, the DAF does eliminate that issue. They actually still send me a receipt, I just don’t need it.
Yes, you can specify sub accounts in a box on the donation form at Vanguard Charitable.
The issue I had getting a receipt from the church (it took months) was apparently because I transferred shares to the wrong church account at Vanguard. They had given me two numbers and only one is the right one for transferring mutual fund shares. This apparently caused issues when they tried to reconcile at the end of the month to send receipts.
Great article. I don’t personally use a DAF fund but have set up a DAF for a non profit that I’m a board member of. I chose to do ours through the National Christian Foundation (www.ncfgiving.com); it allows donors to donate cash to our fund or to donate appreciated funds directly to the charity’s DAF. They simply transfer the funds from their Vanguard/Fidelity or whatever account to our account and then we (the non profit) can sell the shares the next business day. Also, by setting up our DAF as a ‘single charity fund’, individuals hitting at the age (70.5 yrs) to take required minimum distributions from their IRA can donate those shares as well and still avoid capital gains tax. This is a great way to make donations through retirement. It also allows individuals who are donating other assets such as cars/buildings/businesses to have an avenue for tax efficient donations.
Couple questions though:
– about your strategy for 2018; since the new standard deduction is $24,000, from how you explain your generosity (monthly donations/tithing) it seems like it still would’ve been in your favor to itemize?
-my wife and I give 12% of our pretax income to our church (7%) and other charities/ministries (5%). We do this monthly. Other than the convenience of remaining anonymous and getting one tax receipt, I don’t see how a DAF fund would benefit someone like us. We’d basicaly be making a contribution to the fund and the same month, a contribution for the same amount to our church/charity. The money wouldn’t have any time appreciate. It seems like a DAF is more designed to benefit those who can/do make large contributions and keep the money in the fund for enough time for the assets to appreciate before selling them off. Am I looking at that right?
No, I definitely came out ahead in 2018 by taking the standard deduction. We had tons of charitable contributions in December 2017 and January 2019 though.
Yes, it doesn’t sound like a big benefit there for you. But if you want to give to other charities or you want to donate appreciated shares or something you may find the DAF to provide convenience at a price.
Thanks for the great article. I’ve donated Vanguard shares to my church the past two years and it is such a pain, but worth it to avoid the capital gains on old shares.
I’d thought about a DAF but didn’t like the low balance fee since I’d use it primarily for a single annual donation to my church. Thank you for making the phone call about the balance fee – I’ll almost certainly be setting an account up now and using the contribution/donation schedule you laid out.
What I’ve been looking for is an easy (not Vanguard’s current paper method) way to make an annual donation of appreciated shares to my church. I was planning on following the WCI’s method of funding in March and donating in April each year with Vanguard Charitable. I waited to open the account until April and shortly thereafter donated everything to my church. Turns out if you empty your account completely they close it – this isn’t what I was intending to do, but it does avoid the low funds fee next March! I don’t really want to open a new account each year, only to close it a few days later, but it is still easier than the paper method.
On Vanguard’s website next to a link to Vanguard Charitable it says that in 2019:
Give directly to a non-profit organization
Vanguard works with a number of non-profit organizations to help them receive gifts of securities and other investments. If you want to send a gift directly to an organization using one of your Vanguard accounts, please select this option.
It will be interesting to see what that actually is and what organizations are included. It might be a good option for those who aren’t trying to get all the tax benefits in one year and then spread out the actual giving over other years.
They closed it on you huh? What if you left $100 in it from April to February? That should work, no?
I think that would work and I’ll try that next year. I’m hoping the “donate directly” thing pans out and I can just skip the DAF if I want. You can already donate to anyone via the paper method, so why not electronically?
I was just on Vanguard’s site and while it still says that donating directly is coming in 2019, I think it is actually available.
I searched “donation to charity” and then selected the third choice “Give Shares or Securities to an Individual or Organization”. It then takes you through a number of questions where you pick which account you’re donating from, number of shares, date acquired (you have to fill the date in, there is no pick-list of shares from your account), name of the charity/individual and their Vanguard account number. So as long as they have a Vanguard account you should be able to make the transfer.
I didn’t actually hit “submit”, but everything up to that point seemed to be working.
Great article. Timely given the increase in standard deductions and difficulty in making use of of donations. If you are going to donate you might as well be a jerk about it!
Thanks for continuing the DAF discussion. Not yet FI so thinking of starting Fidelity DAF this year.
I’m sure this is not a big focus but still something to consider if you are keeping any sizable balance in the DAF for a period of time. How do you approach the allocation of these funds. Mine is 75% total bond index fund, 25% total stock market. Curious to get your take?
My approach is 100% cash because I never plan to leave any money in there for any longer than 4-6 weeks (i.e. March to avoid the Vanguard annual fee.)
If your plan is to leave money in there long term, then I’d invest for the long term. The classic endowment asset allocation is 60/40 which seems reasonable to me for someone who plans to leave money in there indefinitely and just use a small portion to give to actual charities each year.
Doing our taxes and realizing how much time is spent tracking down the receipts from all of the charities we give to makes me realize how the convenience of a DAF would improve our lives a lot this time of year. Our accounts are already with Fidelity, so it sounds like a no brainer. Thanks for the post!
Shoot. They even give you a warning before charging you the fee. I got this email today:
To our partner in philanthropy,
During the last week of March, Vanguard Charitable will assess a $250 annual maintenance fee on philanthropic accounts with balances below $15,000. Your account will be subject to this fee if your balance is below $15,000 or if you plan to recommend a grant in the next few weeks that may decrease your balance below $15,000.
To review your account balance or make an additional contribution, log in to your secure account and select “Contributions” or “Contribute to my account.” To register for online access, visit vanguardcharitable.org/login and click the “Register” button. Once registered, you can contribute at your convenience by making contributions and recommending grants from any internet connected device.
Here’s a question way after you wrote the article. I was a little confused by one thing you said.
You stated “I end up with a nice online, printable record of what we did that I can use at tax time” as an advantage of the DAF. But don’t you get the tax deduction based on the contribution to the DAF, not based on the DAF contributions to other charities? In which case there is no tax-time reporting of those donations and thus no use for the nice paperwork at tax time?
Fair point, you are correct about the tax treatment.
I took the original comment to be referring to the statement from Vanguard documenting the contribution to the DAF.
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A couple quick questions about how this works in practice. Say you have had mutual funds in a Vanguard account for years. Can you then send these Vanguard mutual funds to any DAF (say TRP)?
The reason I ask, is that it appears that T. Rowe Price has only a minimum balance of $500. If this is the case, it seems that I could periodically transfer my regularly growing funds from Vanguard to TRP, and then immediately turn those into charitable gifts to keep the minimum balance (and associated fees) low.
Just asking if this is how it works. Though this will likely use a greater amount of time (which someone might find $100 or $250/year a perfectly good price to pay for this service), but if I can perform a similar action for ~$3/year, then I will take that for now!
I suspect TRP will take that, but I assure you it will be much more hassle than using Vanguard Charitable. Why not use Vanguard ETFs at TRP brokerage?
First off: thank you SO much for pushing us to donate more. My spouse’s company offers a $10K charitable match each year AND they say they’ll match contributions from a DAF if its in our name. I shudder when I think that we didn’t max this out in 2020… never again.
Quick question: We have a taxable account in Vanguard with some hugely appreciated shares. Must we use Vanguard Charity’s own DAF program to temporarily gift these shares to a DAF, or is there a way to gift taxable Vanguard shares to a Fidelity-controlled DAF?
That’s a nice employer.
I just learned yesterday that you can donate Vanguard shares held at Vanguard pretty easily through the Fidelity DAF.
Appreciate this post. Have read it before but came back to it from a link in one of your other posts. I have avoided DFAf because of the added AUM. However absolutely hate getting the “charity porn” and want them to be using the money for food instead of fund raising. This time for some reason your comment about the minimum fee being assessed in February so loading the fund in January and then distributing in march caught my attention. Brilliant idea and is something I will be using in the future to keep fees down but avoid the charity porn. Thanks and good timing (I just started saving in taxable so still have a year before I can donate appreciated shares and get the full tax benefits of doing so . . . Though quite frankly since just started, those shares have done anything but appreciate :(. )
We’re attracted to Vanguard as that’s where we hold all of our taxable assets. Vanguard easily shows us our specific lots which have the greatest unrealized gains. Yet we won’t be able to keep the daf fund value >$25K for more than a year (at least for the next couple years), and we can’t yet afford to give more than ~$10-12K/y.
Would it work to create a DAF in vanguard then promptly “donate” the entire vanguard DAF to another DAF (perhaps charitywise?) without the <$25K annual fee)?
Sure. But you’d have to close the DAF at Vanguard to avoid the fee. My understanding is that CharityVest and Fidelity can handle your assets at Vanguard just fine.