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The basics of Donor Advised Funds

If you give to different charitable entities and want to ensure your donations are handled in a tax advantaged way, a Donor Advised Fund could be the solution for you. Texas Capital Bank Private Wealth Advisors offers Donor Advised Funds exclusively through the Southwest Community Foundation.

What is a Donor Advised Fund?

A Donor Advised Fund (DAF) is a charitable giving vehicle often sponsored by a community foundation. It provides a tax-advantaged way to make contributions to IRS-approved charities by accepting funds from the donor, investing them in an investment vehicle, and then distributing the funds to charities through the donor’s grant recommendations.

How does it work?

Utilizing a DAF is simple. First, contribute to the fund and receive a tax-deduction immediately.* You can simply write a check or donate jewelry, coins, real estate or other items. You may also transfer securities such as stocks or bonds to maximize your donation, without realizing capital gains tax on the
appreciated value of your assets (see sidebar for an example). Next, you’ll select an investment model for the fund to help your gift grow into a more substantial gift over time — with the benefit of having all
growth accrue tax-free. Finally, you will recommend grants from the DAF to an IRS-approved public
charity (grants cannot be made to a private foundation). The Southwest Community Foundation then
sends out contributions based on your preference. DAFs do not require an annual distribution, so you may choose to distribute or retain as much or as little as you would like in any given year. When you are ready to make a donation, you may request a grant over the phone or via email. You’ll receive confirmation of each disbursement and also be able to keep track of your balances through your Texas Capital Bank Investor Access online portal. Every check to a charity includes a cover letter which references your fund name, or you can choose to remain anonymous. Quarterly statements will keep you updated with deposits and disbursements.

Optimizing deposits to your fund

You can sell your stocks and bonds, and then donate what is left over after you pay capital gains tax. Or, simply donate your securities directly and receive a tax deduction equal to the value of the stock,* while your favorite organization receives a larger donation. Or, donate your stocks and bonds directly, then buy back the securities in the taxable account to optimize your tax savings. Here’s an example of what the numbers might look like if you’re in the 37% tax bracket and you want to donate $100,000 worth of stock.

Selling

Current fair market value of securities: $100,000**

Long-term capital gains tax: $10,000

Amount donated to charity (cash from sale, net of capital gains tax): $90,000

Personal income tax savings: (0.37 x amount donated to charity): $33,300

 

Donating

Current fair market value
of securities: $100,000**

Long-term capital gains tax: $0

Amount donated to charity (value of securities): $100,000

Combined personal income AND capital gains tax savings: (0.37 x amount donated to charity) $37,000

 

Donate and buy back

Current fair market value
of securities: $100,000**

Long-term capital gains tax: $0

Amount donated to charity (value of securities):  $100,000

Combined personal income, capital gains tax savings AND buyback: (See calculation***) $47,000

Is a Donor Advised Fund right for you?

If you answer yes to one or more of the following questions, opening a DAF could be beneficial to you.

  • You would like to simplify or consolidate your charitable giving activities.
  • You would benefit from a charitable tax deduction in the current tax year, but have not identified a specific charity.
  • You would like to optimize your charitable giving. (See chart.)

DAFs can be a great way to manage your charitable giving and maximize the impact of your donation. 

 

About Texas Capital Bank

Texas Capital Bank is a business and private wealth bank focused on understanding our client’s needs and working alongside them to meet their individual financial goals. Headquartered in Texas, we work with clients throughout the state and across the country. Texas Capital Bank, N.A. is a wholly owned subsidiary of Texas Capital Bancshares, Inc. (NASDAQ®: TCBI) and is consistently recognized as one of the Best Banks in America by Forbes.

About Southwest Community Foundation

The Southwest Community Foundation and its affiliated entities have been serving Texans for more than 40 years. The Foundation administers hundreds of Donor Advised Funds, scholarships and endowments, and is providing a specialized service to Texas Capital Bank and its clients. Learn more at: www.southwestcf.org 

Contact us to see if opening a DAF would be beneficial to you.

Advisory services are offered through Texas Capital Bank Wealth Management Services, Inc. d/b/a Texas Capital Bank Private Wealth Advisors (“PWA”), a wholly owned subsidiary of Texas Capital Bank, N.A. (“the Bank”) and an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). SEC registration does not constitute an endorsement of the advisory firm by the SEC nor does it indicate that the advisory firm has attained a particular level of skill or ability. Brokerage services are offered through Kingswood Capital Partners, LLC (“Kingswood”), Member FINRA/SIPC. Texas Capital Bank Private Wealth Advisors and the Bank are not registered broker/dealers and are independent of Kingswood. Investments and insurance products are not insured by Bank insurance, the FDIC or any other government agency; are not deposits or obligations of the Bank; are not guaranteed by the Bank; and are subject to risks, including the possible loss of principal. Nothing herein is intended to constitute an offer to sell or buy, or a solicitation of an offer to sell or buy securities.


Neither Texas Capital Bank Private Wealth Advisors; Texas Capital Bank, N.A.; nor any of its employees provide tax or legal advice. Nothing contained in this communication (including any attachments) is intended as tax or legal advice for any recipient, nor should it be relied on as such. Taxpayers should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor or legal counsel. The wealth strategy team at Texas Capital Bank Private Wealth Advisors can work with your attorney to facilitate the desired structure of your estate plan. The information contained in this communication is not a complete summary or statement of all available data necessary for making an investment decision, and does not constitute a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the authors and not necessarily those of Texas Capital Bank Private Wealth Advisors or Texas Capital Bank.


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