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.
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
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
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.
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