Explaining How Donor-Advised Funds Are a Win-Win Situation

John Diehl   |  Mon Sep 14 17:15:00 EDT 2015

Close-up of coins in a human's palm (black & white)

Financial advisors, before your clients write checks to charitable organizations, consider another option. Encourage them to give more efficiently. Consider donor-advised funds for charitable giving.

Many advisors I speak with don’t consider charitable giving as an area that they can help their clients with, but really, charitable assets are no different than any other asset, particularly when it comes to investment advice. A donor-advised fund enables investors to contribute to charities in a way that often makes better financial sense, while reaping more emotional benefits from the gift. The receiving charities gain from it, and so do the donors.

In my experience, donor-advised funds have three primary wins for the donor:

1. They offer tax advantages.
Transferring long-term capital gain assets to a donor-advised fund may allow the donor to avoid costly capital gains taxes on the donated property. Moreover, they may receive their full tax deduction (subject to tax qualifications and limits like any other charitable donations) in the year of donation, even if distributions from the fund don’t occur until future years.

2. They allow for flexibility.
Since it was a charitable gift, the property no longer belongs to the donor, but they can still participate by advising the fund administrator on which public charities might be worthy of fund distributions. As mentioned above, a gift made to a donor-advised fund doesn’t need to be fully distributed in the year of the gift, but can be given over a number of years to any number of eligible public charities. By contrast, an outright gift is immediately available only to the single charity to which it is given. Additionally, donors can recommend to the administrator that their financial advisor provide investment advice to the fund.

3. They provide a vehicle for investors to leave a charitable legacy.
Because of the flexibility of donor-advised funds, donors can get their family involved in charitable giving. When advising which charities might receive distributions, encourage your clients to have their children and spouse weigh in on the causes to support. By getting them engaged with a donor-advised fund in this way, your client can teach their children about the value of wealth in helping others, perhaps by even becoming actively involved in participating in charitable activities. Also, since a donor-advised fund enables investors to name successor advisors, those family members can continue advising on charitable matters even after the death of the initial donor.

Given the greater emphasis on helping others, donor-advised funds have been making headlines recently. If your client is looking for a way to give back, especially upon reading such news stories, talk them through the benefits of a donor-advised fund. Donor-advised funds are also a great topic to cover with your millennial clients, as they tend to be a more socially conscious generation. At the end of the day, any method of giving is an exceptional idea—but donor-advised funds help not just to give, but may help to give better.

This material is not intended to promote any product or service offered by Hartford Funds. Hartford Funds does not offer donor-advised funds and does not act as a sponsoring organization or as the trustee/administrator for donor- advised funds. This material is intended to provide only general information and is not intended, nor may it be construed as providing, tax or legal advice. Because contributions and distributions from a donor-advised fund may have important tax consequences which are subject to complex tax and legal requirements, we encourage you and your clients to seek advice from a qualified tax and legal advisor. Hartford Funds and its employees cannot provide tax, legal, accounting or benefits advice.

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John Diehl

John Diehl  

CFP®, CLU®, ChFC®
Senior Vice President, Strategic Markets Hartford Funds


John Diehl is senior vice president of Strategic Markets for Hartford Funds. He and his team are responsible for engaging and educating financial advisors and their clients about current and emerging opportunities in the financial-services marketplace. These opportunities range from tactical strategies in areas such as retirement-income planning, investment planning, and charitable planning, to anticipating and preparing for long-term demographic and lifestyle changes. John also oversees Hartford Funds’ relationship with the Massachusetts Institute of Technology AgeLab.

John joined the company in 1988 and was promoted to assistant vice president in 1991 and vice president in 1997. He was named senior vice president in 2007, while he led the Retirement and Wealth Consulting Group, which was responsible for building awareness and knowledge of retirement challenges and the latest planning strategies to address them. In 2012, John was named Senior Vice President, Strategic Markets; in this role, he devotes his efforts to serving the needs of financial advisors and their clients.

John has been widely quoted in consumer and trade publications such as The Wall Street Journal, Financial Planning, and On Wall Street. He has also appeared as a featured guest on CNBC and Bloomberg Television to discuss his views on retirement-related topics.

John attended Moravian College in Bethlehem, Pennsylvania, where he earned a bachelor’s degree in economics. He has been a CERTIFIED FINANCIAL PLANNER™ (CFP®) since 1991. In addition, he holds the Chartered Financial Consultant (ChFC®) and Chartered Life Underwriter (CLU®) designations. He is also FINRA Series 6, 7, 63, and 26 registered and holds a life and variable insurance license.


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