FAMILY VALUES: What's the best way to pass them on?

FAMILY VALUES: What’s the best way to pass them on?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.

A private foundation and a donor advised fund (DAF) 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 significantly in cost and administration, so you should consider the level of time, effort and expense you want to expend to set one up. A donor advised fund is by far the easier and less expensive route, and it offers a more robust immediate tax deduction.

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 50% 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 No

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.

 

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