Planned Giving

What is a Donor Advised Fund?

A Donor Advised Fund (DAF) at Capstone works like a charitable checking account. But instead of depositing money and writing checks, you can contribute all types of assets (such as cash, stocks, bonds, real estate, business interests and other non-cash assets), receive an income tax deduction at the time of donation, and then go online to recommend grants to your favorite charities.

By allowing you to donate these "non-cash assets" before selling them, DAFs help lower your tax exposure. You can also receive immediate deductions on windfall earnings while gaining time to allocate gifts at your own pace.

The Benefits of Capstone Legacy

Powerful Benefits with Like-Minded Values

  • Simple - Reduce paperwork, receipts, and administration.
  • Efficient - Spend less in taxes and send more to charity.
  • Convenient - Manage all giving online from any device.
  • Christian - Enjoy service from a like-minded Capstone team.
  • Reliable - Our team ensures grants to meet IRS standards.
  • Fun - Clients enjoy giving with their entire family.

Foundation Versus Wire House

When you decide to open a Donor Advised Fund, there are many options where to do it. But your main choice lies between opting for a wire house or a community foundation.

A “Wire house” is a full-service broker-dealer. These include familiar names like Fidelity, Schwab, and Vanguard. (The term “wire house” was coined back when brokerage firms communicated to their branches through telegraph and stock ticker wires.)

Community foundations, by contrast, are non-profit institutions that pool donations for making charitable grants.

If wire houses operate with a profit motive, foundations have social aims. Many American community foundations are “progressive,” with secular (sometimes anti-Christian) aims. Others are more conservative or religious in nature. Capstone Legacy Foundation falls in this latter category.

Are you looking for Christ-centered, morally driven giving? Looking for a kingdom-driven perspective on wealth? Capstone Legacy Foundation provides a diverse series of giving vehicles and fiduciary services that provide you with peace of mind.

Ways to Donate

Stocks and Bonds

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.

Real Estate and Other Non-Cash Assets

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.

Buy or Sell a Buisness

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.

Impact Investing

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.

Charitable Gift Annuity

A Charitable Gift Annuity (CGA) allows you to make a gift of cash or securities in exchange for fixed payments the rest of your life. Upon your death, the remaining value goes to your favorite charities.

Here’s how it works in a nutshell

You gift money or appreciated assets to Capstone, who issues a CGA contract. You receive an immediate tax deduction on a portion of that gift, and then receive fixed annuity payments each year for the rest of your life. A CGA can be issued on a single life or on a joint life.

Here are three of the main benefits:

1. Fund your CGA with cash, stocks, bonds, mutual funds, and other non-cash assets (not including real estate).
2. Support your favorite charities—either in your name or anonymously—while receiving fixed payments for life.
3. To fund the payout of your CGA, Capstone reserves the right to fund this traditionally or by reinsuring it through a commercial annuity.

Real Life Example

Capstone functioned as the charitable gift planning department for a ministry in Lancaster, Pennsylvania. When the owner of a well-known business sold his company, he used a lot of the proceeds to make multiple gifts to local and national faith-based organizations. One of his last estate planning strategies was to enter into a CGA agreement for $2 million with Capstone. The CGA paid out quarterly income based on his age and a set rate of return of 9%. One year later the donor died and the residual (balance) of the account was paid to the designated ministry.

Charitable Lead Trust

A Charitable Lead Trust (CLT) is an irrevocable trust designed to reduce tax liability upon inherence.

Here’s how it works in a nutshell:

You set up the CLT, and then donate payments from the trust to a charity for a set amount of time. After this time period expires, a beneficiary gets the balance of the trust. This reduces taxes the beneficiary owes for inheritance, and gives them additional tax benefits, such as income tax deductions for charitable donations, and savings on estate and gift taxes. CLTs also set up a continuous way for beneficiaries and benefactors to make further charitable contributions without manually issuing monthly payments. CLTs are generally set up during the estate-planning process of estate planning, when a will, or when benefactors want to reduce the burdens their beneficiaries will incur upon receiving their inheritance.

REAL LIFE EXAMPLE

Mary (not her real name) held mineral rights in Texas, and for years, she thought nothing of them. Then fracking came along, and suddenly she was a multi-millionaire in her late 90s. Capstone Legacy Foundation helped her place money from her mineral rights in a lead trust to reap significant tax-free funds at a future date.

Her lead trust is the largest owner of her land with the mineral rights. Annual grants from her trust finance a college in Arizona, food banks in California, and a charity for international fellowship for Christians and Jews.

She also set up remainder trusts for each of her three children. Each of her children’s charitable remainder trusts get about $15,000 per month from oil. When Mary passed away, her bank tried to secure details for the DAF to take it over from the family.

Capstone fought the banks and secured Mary’s donor intent by threatening to remove the banks from the account. The bankers suddenly became friendly to keep the account and avoid a lawsuit. This is an example of how Capstone secures tax free money for donors and secures their intent after death.

Charitable Remainder Trust

A Charitable Remainder Trust is designed to reduce taxes while producing an income stream for the donor or designated beneficiary over a stated period. Once this timeframe expires, the remaining value of the trust is transferred to designated charities. Charitable remainder trusts are irrevocable, which means that by creating such a trust, you remove your rights of ownership to the assets.

The two main types of charitable trusts have funny sounding acronyms:

1. Charitable Remainder Annuity Trusts (CRATs) distribute a fixed payment each year.
2. Charitable Remainder Unit Trusts or (CRUTs) distribute a fixed percentage based on the annual balance of the trust assets.

Real Life Example

George (not his real name) was a real estate developer in Pennsylvania who did very well financially. As part of his estate planning process he created a CRUT and he gifted to it a townhouse. George had purchased this townhouse while it was still under construction, 17 years earlier. The property value had increased significantly and George’s cost basis in the home was minimal. Placing this home into the trust allowed for the sale of the property without incurring capital gains tax, removal of the asset from the personal estate, continue to generate a flow of income AND ultimately leave a gift to one of his favorite charities.

Need help? Want to learn more about what Capstone can do for you? Contact us TODAY!