Family Values: What’s the Best Way to Pass Them On?

Walker Wealth Strategies |
Categories

Many fine traits get passed down in families, from being tall to having a full head of hair to understanding the value of money. For families who embrace philanthropy, creating a family legacy is a good way to pass on those non-genetic values.

Private foundations and a donor advised funds (DAFs) share similar advantages. For example, contributions are tax deductible and removed from your taxable estate, you may influence fund investments and which charities receive charitable donations and both can be named in honor of your family. However, they differ in cost and administration, so you should consider your philanthropic wishes and how much time, effort and expense you want to invest in one of these giving solutions.

A donor advised fund allows you to create a charitable legacy that offers flexibility with grant-making and advantageous tax deductions. On the other hand, establishing a private foundation allows for more flexibility with gifting, opportunities to market for the cause you support, the ability to hire staff and the ability to run expenses related to the charity through the private foundation.

With a donor advised fund, you basically sign an agreement with an endowment fund manager that gives you the latitude to advise how your charitable gifts are managed and distributed. The administrative, investment and recordkeeping services are provided by the fund. And unlike a private foundation, a DAF is not subject to excise taxes on investment income.

Donor advised funds, such as that administered by the Raymond James Charitable Endowment Fund, typically require a lower minimum contribution than a private foundation — around $10,000. Because a private foundation has more administrative and tax filing expenses, it requires much larger funding to generate enough income to pay for those expenses.

The following table provides a side-by-side illustration of the advantages of a DAF compared to a private foundation.

Donor advised fund

Private foundation

Requires setup fee?

No

Yes

Requires attorney to set up?

No

Yes

Requires family to administer?

No

Yes

May name family advisors?

Yes

Yes

Low minimum contribution?

Yes ($10,000)

No

Tax deduction for cash contributions?

Up to 60% of AGI

Up to 30% of AGI

Tax deduction for security and real property contributions?

Up to 30% of AGI

Up to 20% of AGI

Annual excise tax?

None

1% to 2% of net investment income

Estate taxes on contributions?

No

No

Requires annual distributions to a qualified charity?

No

Yes, minimum 5% of investment return

May recommend investment options?

Yes

Yes, but restricted

May recommend charities paid?

Yes

Yes

Charitable donations may remain private/anonymous?

Yes

No

Requires a separate tax filing each year?

No

Yes

To learn more about how to pass down your family's philanthropic values, speak with your Raymond James financial advisor about a donor advised fund with the Raymond James Charitable Endowment Fund. We recommend you work with your financial advisor alongside your legal and tax professionals to coordinate the most appropriate charitable solution for your situation.

Materials prepared by Raymond James for use by its advisors.