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Bonus Season: Why a Donor Advised Fund is Right for Executives, Right Now

How corporate execs use donor advised funds for smarter charitable giving at #bonus time Tweet This

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Spring is a time for rebirth, renewal—and unrestricted stock awards!

Bonus season is upon us, which means your clients are thinking about the impact of this year’s incentive compensation on their income taxes, their estate plan and hopefully their philanthropy. Now is your opportunity to lead with advice and suggest a donor advised fund as a way to help your corporate executive clients maximize their philanthropy.

A single contribution receipt is a beautiful thing

Corporate executives are often just as busy in their civic and social lives as they are with their work. This may include serving on a nonprofit board, chairing a civic committee, leading a fundraiser or mentoring through an alma mater or neighborhood organization.

With great civic commitments often come numerous charitable gifts, and tracking down those gift receipts at tax time can be a headache.

A donor advised fund is a great vehicle for simplifying your clients’ charitable giving, especially for clients who tend to make several smaller gifts to charity throughout the year.

The donor can make one annual contribution to his or her donor advised fund, and receive one gift receipt for tax purposes. The donor can then recommend grants out of the donor advised fund account to multiple charities throughout the year.

Capitalize on stock awards for charitable giving

Many corporate executives have significant holdings in a single stock. These stock holdings may be an excellent option for funding a donor advised fund account, especially if the stock has a low basis with built-in gains.

Of course, when a donor makes a gift of stock, she can deduct the full fair market value of the stock and avoid realizing the capital gain when the receiving charity sells the stock—a double tax win.

What can a potential donor do if she wants to make a charitable gift of stock, but may not want all of the stock sold immediately?

Some donor advised fund providers, including The Chicago Community Trust, permit custom investment allocations on larger accounts. For instance, The Chicago Community Trust allows donors who fund an advised account at one million dollars or more to recommend a customized investment portfolio for their funds.

When a donor makes a gift of stock, she can deduct the full fair market value of the stock and avoid realizing the capital gain when the receiving charity sells the stock—a double tax win.

This may be an ideal solution for corporate executives who prefer to make large charitable gifts using stock, but see the stock as having potential to appreciate over time.

Gifts of stock can be challenging for some charities

Your corporate executive client may have the desire to make gifts of stock to organizations that simply do not have the mechanisms or capacity to accept gifts of securities. This may be especially true of smaller charities or local religious institutions.

An easy solution to this challenge is a donor advised fund. Your client can fund a DAF at the Trust with appreciated stock, and an in turn can recommend grants out to organizations. Those grants are sent as checks, making it very easy for smaller or less-sophisticated organizations to receive support.

During this bonus season, consider your corporate executive clients who may benefit from leveraging equity awards to fund their philanthropy. The Chicago Community Trust is well positioned to help those clients simplify their giving, maximize the tax incentives of making charitable gifts and make your life as an advisor easier come tax time.

For more information, please contact Tim Bresnahan at 312.616.8000 ext. 158 or by email at tbresnahan@cct.org.