Donor-advised funds (DAFs) are the nation’s fasting growing charitable vehicle, due to their versatility and efficiency. An NPT DAF provides the opportunity to contribute a wide range of assets, allowing donors to convert these assets into charitable capital. Below, you can read about the guidelines governing the process of contributing assets of all types.
General Rules
Any contribution to your DAF is irrevocable. Assets cannot be taken back once gifted to the DAF account; while the assets belong to the sponsoring organization following contribution, donors maintain advisory privileges and can recommend how the assets are granted. Contributed assets can only be used for charitable purposes. All contributions are subject to approval, and the sponsoring organization retains exclusive legal control over the contributed assets. Cash contributions to a DAF are deductible at up to 60% of adjusted gross income (AGI), and non-cash contributions generally can be deducted up to 30% of AGI, with a five-year carry-forward.
Sponsoring organizations often require a minimum initial contribution to establish a DAF account, which may range up to $250,000; NPT requires an initial contribution of $10,000. Once your DAF account is established and funded, you can make subsequent contributions in any amount at any time. Many donors prefer to replenish their accounts immediately following a grant recommendation. Others make regular contributions to build their account for future grantmaking. The contributed assets remain in the DAF until the donor recommends a grant. NPT’s policy stipulates that a donor must grant out at least $250 to a qualified charity every 36 months, but otherwise, the funds can remain invested in the DAF account indefinitely.
Once your contribution is accepted, it is invested according to your recommendations. NPT offers several standard model portfolios as DAF investment options as well as thematic impact investment portfolios. If you contribute cash, funds are invested on the same business day as they are received. If you contribute publicly traded securities or other non-cash assets, the funds will be invested after proceeds from their sale are received. NPT is committed to selling non-cash assets in a responsible and timely fashion.
The following is a non-exhaustive list of the types of contributed assets NPT may accept for donation:
- Cash
- Cash equivalent assets
- Credit card gifts
- Publicly traded securities
- Restricted securities
- Control securities
- Exchange-traded funds
- Mutual funds
- Closely held business interests (C-corporation, S-corporation, etc.)
- Private equity fund interests
- Hedge fund interests
- Cryptocurrency
- Real estate
- Fine art and collectibles
- Life insurance policies
- Testamentary gifts and gifts from trusts
- Transfers from an existing foundation or other donor-advised fund
- Distributions from a retirement account
Contributions of illiquid assets are reviewed on a case-by-case basis. Additional due diligence is required to complete the contribution.
Contribution Deadlines
To be eligible to claim a tax deduction in a given tax year, you must complete the contribution to your DAF by the last day of the year: December 31. Because many kinds of assets such as mutual funds, stocks, bonds, and real estate require due diligence and processing, NPT provides earlier deadlines by asset type to initiate the contribution to your DAF. These asset-specific deadlines help ensure the contribution process is complete by the end of the calendar year.
What You Can Donate
Cash contributions can be used to open or add to your donor-advised fund. Funds can be contributed by check, wire transfer or automated Electronic Fund Transfers. Often the most readily available asset, donors sometimes choose to make cash contributions to supplement their non-cash contributions, and to ensure liquidity for immediate grantmaking or fees. The deductibility limit for cash contributions is higher than the limit for non-cash assets. What’s more, cash contributions can be invested in any of NPT’s wide range of investment options, providing the opportunity for positive investment returns that could afford you even greater grantmaking capital in the future.
Non-cash assets, sometimes referred to as illiquid assets, are often the most tax-advantageous kinds of assets to give, making them an excellent source of philanthropic capital. By donating non-cash or illiquid assets directly to a DAF, the liquidation and/or sale of your contributed assets may not be subject to capital gains tax, preserving more of the value for philanthropic giving.
If you have held publicly traded securities for more than one year, a direct contribution to your DAF is generally eligible for a fair market value tax deduction. NPT will liquidate unrestricted publicly traded securities upon receipt into NPT’s brokerage account and the net proceeds of the sale will be credited to your DAF.
You can donate appreciated restricted and/or control securities by providing certain information about your acquisition of the shares, and NPT will conduct due diligence to determine whether the shares are subject to any transfer or sale restrictions.
Additional due diligence is required if (1) you are or in within the last 90 days have been a corporate officer, director or other executive of the stock issuer, a member of the controlling group of the stock issuer, or otherwise an affiliate of the stock issuer, or (2) if any securities that you wish to donate to your DAF are restricted or control securities subject to Rule 144, 144A, 145, 701 or Regulation S of the U.S. Securities Act of 1933, as amended, an effective registration statement, and/or any contractual limitations. If the shares are eligible for transfer but also subject to restriction, NPT’s legal team will work with the issuer’s counsel to have the restrictive legend removed. NPT must preapprove all gifts of restricted and/or control securities.
When choosing to donate interests in a private company directly to your DAF, the assets are liquidated as part of the sale and made available for grantmaking. Once in the DAF, the assets can be invested, with any investment growth being tax-free. NPT must preapprove all gifts of closely held business interests. Each such gift is evaluated on a case-by-case basis and due diligence is required. NPT requires an up-front cash contribution to ensure sufficient liquidity to cover due diligence costs.
To donate limited partnership interests in a hedge fund, you will provide certain organizational documents to enable NPT to complete an operational due diligence review. During this process, NPT will review features such as redemption terms and lock-up periods and requires an up-front cash contribution to ensure sufficient liquidity to cover operational due diligence costs. If you are affiliated with the fund, the LP interest must be in a no-fee share class or the fund must waive all fees for NPT to ensure you are not receiving a prohibited benefit.
By donating your family residence, land, or rental or investment properties directly to your DAF, you can preserve more of the property’s value for philanthropic giving. Any donated real estate should be considered marketable, held for more than one year prior to being contributed and free of any debt. NPT will not accept property that is connected to a prearranged sale. Donors must obtain a qualified appraisal for contributions of real estate valued above $5,000.
NPT must preapprove all gifts of real estate. Each such gift is evaluated on a case-by-case basis and due diligence is required. NPT requires an up-front cash contribution to ensure sufficient liquidity to cover due diligence costs.
The capital gains tax rate assessed on tangible assets such as collectibles, art or jewelry can be higher than other capital assets, depending on the type and method of acquisition. Contributing these assets to a DAF can help you bypass the recognition of capital gain. The charitable deduction for a contribution of tangible personal property to a DAF will be limited to the lesser of cost-basis or fair-market value. For gifts of tangible personal property, NPT will provide a gift receipt that describes the asset contributed but will not provide a dollar value; the donor is responsible for obtaining a qualified appraisal. NPT must preapprove all gifts of tangible personal property. Each such gift is evaluated on a case-by-case basis and due diligence is required.
NPT can accept many types of cryptocurrency as charitable contributions. Your tax deduction will be equal to the fair market value of the cryptocurrency if the asset was held for more than one year. If the cryptocurrency has been held for one year or less, you will be eligible for a deduction of the lesser of the fair market value of the asset at the time of the donation and the cost basis of the asset. Donors are required to provide documentation regarding the acquisition of the cryptocurrency. NPT must preapprove all gifts of cryptocurrency. Each such gift is evaluated on a case-by-case basis and due diligence is required.
Tax Implications
Upon contributing to your DAF, you will receive a written acknowledgment of your contribution, which serves as a receipt for tax purposes. These gift receipts are accessible at any time on NPT GivingPoint, our secure donor portal.
When you make a gift, you may be able to claim a charitable contribution deduction on your U.S. federal and state income tax returns for the value of the gift. The amount of the deduction will depend on many factors, including the type of asset you contribute and your personal financial circumstances. Not all states offer income tax benefits for gifts to charity. You should consult your tax advisor to determine your specific tax consequences.
Because you may take a tax deduction for your contribution, you cannot claim an additional tax deduction for the grants you recommend from your donor-advised fund. In addition, the assets in an NPT DAF may accrue income from investment growth, dividends or interest. Income accrued in your DAF account is not eligible for deduction but will also not be taxed.
NPT is a public charity, and contributions to your DAF are treated as a contribution to a public charity. Under the Internal Revenue Code, deductions for charitable contributions are subject to percentage limitations on your adjusted gross income (AGI), which vary per type of asset. Cash contributions can be deducted up to 60% of AGI, while contributions of securities can be deducted up to 30% of AGI. You can claim the deduction in the year you make the contribution; contributions in excess of these percentage limitations may be carried forward for five (5) years.
The amount of your tax deduction will depend on the type of asset contributed:
- Check/wire: Your charitable deduction is the amount of your cash contribution.
- Publicly traded securities: If you have owned your securities for more than one year, your gift value is the fair market value (FMV) of the shares, determined by an average of high and low on the date you contribute them.
- Securities that are not publicly traded: If you have owned your securities for more than one year, your gift value is the FMV of the shares, determined on the date you contribute them. The IRS may require you to obtain an independent qualified appraisal.
- Real Estate: For contributions of real estate, your gift value is the FMV of that real estate, determined on the date the asset is contributed. The IRS may require you to obtain an independent qualified appraisal.
Charitable income tax benefits vary by state. NPT strongly encourages you to consult with your tax advisor or attorney before making a charitable contribution.
QCDs and IRA/401(k) Retirement Distributions
A qualified charitable distribution (QCD) is a distribution from an IRA owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity. QCDs count toward an individual’s required minimum distributions and are not subject to income tax deductions because they are considered a direct rollover to charity. Unfortunately, QCD’s cannot be made to DAFs, private foundations or supporting organizations.
While distributions from retirement plans during your lifetime are taxable as ordinary income, you can still make charitable use of your retirement accounts by including your DAF in your estate plan. Naming your DAF as a beneficiary of your traditional IRA or other retirement account provides a series of benefits:
- Your estate will receive an estate tax deduction for the charitable contribution.
- Your heirs and your estate are not required to pay income taxes on the distribution of assets.
- The full amount of your retirement account will directly benefit causes important to you.
