Mini Case Study: Donor Advised Funds
This week, we created a plan to help one of our charitably inclined, high-earner clients diversify Intel stock while also lowering his tax bill.
Here’s what that looked like:
Mike has held Intel for 20+ years. After the stock's big run over the past year, he wanted to take some chips off the table and reduce his single-stock concentration risk.
However, this created a problem: selling would have triggered a substantial tax bill.
Fortunately, Mike is charitably inclined and supports a range of local causes. So instead of selling, we suggested he contribute $100,000 of his appreciated Intel shares directly to a Donor-Advised Fund.
A Donor-Advised Fund (DAF) is a charitable investment account. You make an irrevocable gift of cash or appreciated assets, take an immediate charitable tax deduction in the year you contribute, and then recommend grants to the charities you support on your own timeline. While the money waits, it can be invested and grow tax-free.
Donating the shares instead of selling them gave Mike a win-win scenario:
He permanently avoided the capital-gains tax—roughly $33,000 he'd have owed on the ~$90,000 gain had he sold the shares himself.
He received a charitable deduction for the full fair-market value of the shares.
From there, the Intel stock can be sold inside the DAF with zero capital-gains tax and reinvested in a diversified portfolio. This means his charitable dollars are diversified and growing, and his personal portfolio now carries less single-stock risk. Mike can grant to his favorite charities whenever he likes.
If you're sitting on concentrated, highly appreciated stock, are charitably inclined, and want to diversify tax-efficiently, a Donor-Advised Fund can be a powerful tool.
Send me an email (nick@swrpteam.com) or book a time on my calendar (https://calendly.com/nick-swrpteam) if you’re dealing with a similar situation and need a trusted Advisor that can help.
This material is purely intended to be general and educational in nature, and should not be construed as specifically-tailored investment, financial planning, tax, legal, or other professional advice. Information and data contained herein is as-of the date of publication, and may be subject to change in the future without notice. Any investment performance referenced is purely past performance, which is no guarantee of any future performance. Nothing contained herein should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or other financial product or investment strategy. All investment, tax, and financial planning strategies involve risk that you should be prepared to bear. You are highly encouraged to consult with professionals of your choosing before taking any action based on this material.