Daniel Teplitz & Associates Financial Advisors LLC

Charitable Giving Tax-Wisely

You may have read that Facebook founder, chairman and CEO Mark Zuckerberg has announced plans to gift substantially all of his Facebook stock to a philanthropic entity called the Chan Zuckerberg Initiative, named after himself and his wife Priscilla Chan.  The gift would be worth $45 billion, instantly becoming one of the largest philanthropic pools in the world.

The donation is remarkably tax-efficient.  By making the gift in shares rather than cash, Mr. Zuckerberg will get a charitable contribution deduction on Schedule A of his 1040 form, with the deduction based on the fair market value of the shares.  At the same time, he will completely avoid having to pay capital gains taxes on the appreciation of those shares.  The LLC can then sell the Facebook stock or hold it and dole it out to charitable organizations and pay no tax regardless of how big the gain.  Basically it means that one of the world's great fortunes will never be taxed, while Mr. Zuckerberg will be able to shelter billions of dollars worth of other income from federal taxation.

Charitable givers of any size can replicate this strategy using what is known as a Donor Advised Fund. A Donor Advised Fund is simply a personal charitable account funded by transferring stock or real estate. All capital gains taxes are avoided upon the transfer of the asset and your charitable contribution is based on the full value of the stock transferred. This makes it especially attractive to charitable givers with "highly appreciated assets" in their portfolio.

Once established you recommend how the funds are distributed to charitable organizations. The administrator of the account will then forward a contribution to the charity of your choice as long as that charity qualifies under IRS regulations. In effect, it allows you the opportunity to set up your own mini private foundation without the (considerable) cost of actually establishing a private foundation for yourself.

Once you make a contribution to the donor-advised fund, the fund handles all of the administrative aspects of the fund and distributions. You receive a tax deduction for the full value of the contribution in the year that the transfer is made even if gifts from the account are spread out over a number of years. Until your account is completely spent, it earns income and can continue to grow tax-free. And, some funds allow you to advise contributions as low as $250. Most donor-advised funds will even allow you to designate how your account is invested, giving you a choice of several pools containing various investment alternatives.

Feel free to call anytime if you feel that a "donor-advised fund" will meet your charitable intent and we can discuss this technique in greater detail.

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