When most people donate money, they do it by sending cash from their checking accounts. But we’d like to suggest “a more excellent way.” By donating shares of stocks, bonds, or mutual funds to your Donor Advised Fund (DAF) before liquidating them, you can make larger gifts, pay lower taxes, improve your cash flow, and simplify your giving for a multi-dimensional win.

The key is to donate such assets before selling them.

Here are some of the major advantages:

• Eliminate capital gains tax on the donated stock.
• If you donate the stocks, ETFs, and mutual fund shares that have done well and selling the ones that have lost money, you can rebalance your portfolio tax free across all market cycles!
• If you still like the stock you donated, you can repurchase it again for a higher cost basis and lower future tax exposure.
• Receive your tax deduction precisely when you need to realize your gains/ losses, and then decide where to donate the proceeds later.

If you liquidate such Real Estate assets you face the following problems:

• It may not be a seller’s market when you sell.
• The market may not be very liquid.
• Selling at a profit may bring heavy taxes on capital appreciation.

Donor Advised Funds help solve these problems by letting you give appreciated non-cash assets instead of writing checks.

By opening a Donor Advised Fund (DAF), you can transfer non-cash assets into your DAF and then sell them for a tax deduction at the donated asset’s fair market value. Here's a real life example of how it works:

Betty and Jim (not their real names) were lifelong givers. Upon reaching retiring age, they had sizeable assets, including shares of stock in a local bank that Jim inherited from his father, and a farm Jim also inherited (with an estimated value of $1,500,000). Over time Jim’s bank stock lost significant value (to the tune of 90%) and the only recourse was to sell and capture a sizable capital loss. After losing so much paper value on the bank stock and gaining so much on the farm, Betty and Jim needed a way to take advantage of capital loss on the stock. While considering these factors, Jim died unexpectedly, and Betty suddenly needed this tax event to occur within a year of Jim’s death. Over the course of several years leading up to Jim’s death, his wealth advisor Michael pieced together a plan for him to sell his farm and simultaneously claim a loss on his bank stock while gaining a tax exemption by deeding 10% of the farm’s value to a Donor Advised Fund in their name at Capstone Legacy Foundation before the time of sale. (Additionally, Michael also arranged for Betty and Jim to fund a charitable gift through a life insurance policy arranged through Capstone.) When Betty finally auctioned her farm, the local school district bought the property for just over $1,900,000 ($400,000 more than the anticipated $1,500,000). With Capstone owning 10% of that value, Betty only had to pay taxes on the remaining 90%, and she was able to use the capital loss. Plus, she was able to advise Capstone what to do with the 10% that went into her Donor Advised Fund. By donating part of her farm’s value before the sale, Betty only had to pay taxes on her remaining portion.

Capstone Legacy Foundation offers vehicles for managing your sale to optimize charitable giving while minimizing taxes.

Here’s how it works:

1. Before buying or selling your business, open a Donor Advised Fund (DAF) in your name. Capstone will work with your wealth advisor and other trusted professionals (attorneys, accountants, etc.) to map out the details.
2. After setting up your DAF, you donate a non-voting interest in the business to your DAF before the sale.
3. This allows you to:
   • Receive a substantial tax deduction,
   • Reduce/ eliminate capital gains taxes on the gifted interest, and
   • Convert those tax dollars into more giving to your favorite charities.

Real Life Example

Phineas (not his real name) was a successful businessman. One year, wanted to buy an investment property that generated around $100k in positive cash flow per year. Before buying the property, Phineas formed a holding company with Capstone. Then he bought the property for 20% down and donated 99% of the financial ownership to Capstone while keeping 1% for himself. The 1% share he kept had ALL the voting rights. This arrangement allowed him to run the investment as he saw fit. And then he could sell the asset whenever he was ready. By purchasing his property this way, he received an immediate and maximum tax deduction for the charitable gift.  Moreover, by eliminating income tax on earnings from the donated portion of the company, he greatly enhanced his operating cash flow.

Program Related Investment, also known as "impact investing" is a newly evolving financial hybrid that seeks to blend profit seeking and philanthropy. Used with a Donor Advised Fund (DAF), it can greatly amplify the impact of your giving. Instead of investing all the money in your DAF in stocks, bonds, and other traditional securities, you can ask Capstone to invest some or all of the money into private companies engineered for social impact. These companies use your capital to help others while still providing a profit from their operations. Financial returns from this impact company go back into your DAF balance.