Last week, Wes Moore sat down with Elda Di Re, an Ernst & Young LLP tax partner with private client services, to talk about charitable giving at year-end.

Wes Moore: Why is this the right time to talk about tax efficiency in philanthropy?
Elda Di Re: It’s December — this is when the vast majority of charitable giving occurs. People like to think about charitable giving during this time, as well as tax efficiency — as in, how do you lock-in a tax deduction before year end? To get the most bang for your philanthropic buck, you want to give in the most tax-efficient way possible.

WM: Once your clients decide to make an impact, how do you help them think about the right time to make a charitable gift?
EDR: If you’ve done well and the markets are doing well, consider using your earnings to fund a cause you care about. Next month or next year, the markets could be down; don’t miss the opportunity to give when the markets are at such high levels. We know that when times are tougher for individuals, they scale back. That said, it’s important to give when the going is good for you. These are good times. But we don’t know how long they’re going to last.

WM: I know there’s been a trend toward giving appreciated securities lately. Can you talk about why that is?
EDR: Clients are getting very sophisticated about being philanthropic in the most tax-efficient way. Donors can give appreciated securities directly to a public charity and get a deduction for the fair market value on the day that those securities are transferred. No one pays the tax on the appreciation, assuming the donor held that security for at least one year.

To me, that is a fabulous gift: you not only get the deduction for the value, but you’re also not being diluted by any tax liability. It doesn’t make sense to sell your appreciated securities, pay tax, and then give cash. Just give the asset. With today’s markets reaching record highs, most people have appreciated assets (stocks, mutual funds, etc.) they can move off their balance sheet to get a deduction.

WM: Robin Hood just launched a donor advised fund (DAF) and we’re really excited about it. Can you talk about what a DAF is, and what the benefits of having one are?
EDR: DAFs are playing a bigger and bigger role in charitable giving. They’re a great way to lock in a deduction with your assets — whether you contribute cash or appreciated securities — while buying some time as to where you want the money to go, and when you want it to go.

A DAF is essentially a philanthropic checking account. You contribute the asset and get the deduction now. Then, you advise how those assets are invested. The returns are tax-free while sitting in the fund. When you’re ready, you recommend which public charities you want the money to go to, with no time frame in which you’re required to distribute the funds.

It’s like having your own private foundation but without the legal documents to draft it, without the expenses, and without annual tax return filings. It’s simple. And yet you don’t have to be a multi- multi-millionaire to set one up. DAFs are a great solution for those who think they might be taking a standard deduction going forward; but you set up and fund your DAF today while you still itemize.

We’ve also seen companies set up DAFs to encourage charitable giving amongst their employees. It can be done in several ways; the company can fund the DAF and then ask employees for input on where the money should go, or they can set up separate accounts for each employee to advise. Your employees can name their individual DAFs whatever they want and even use them like a private family foundation. Meanwhile, you’re creating a culture of giving. In fact, we often see employees looking to fund their own DAF once given the opportunity.

Robin Hood and its affiliates and employees do not provide tax, legal or accounting advice. This article has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. You should independently, without any reliance on Robin Hood, make your own judgement and decision with respect to any transactions or investments referenced in this publication.

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