California has a long history of generous charitable giving, with donations reaching billions of dollars. However, many Californians struggle to balance their desire to support worthy causes with the need to maximize their tax benefits.

Donor-advised funds (DAFs) can be a powerful tool if you’re looking to bridge this gap. DAFs offer a unique blend of strategic philanthropy and tax benefits, allowing you to pursue your charitable goals while reducing tax burdens.

At Bulman Wealth Group, we bring decades of experience in wealth management. We focus on legacy and retirement planning in Northern and Southern California.

In this blog, we’ll cover donor-advised funds and how you, as a California resident, can use them to leverage your philanthropy goals and optimize your tax planning.

What Are Donor-Advised Funds (DAFs)?

A DAF is a charitable giving account established at a public charity that allows you to make a tax-deductible contribution upfront. These funds then grow tax-free, and you retain the ability to recommend grants to qualified charities over time. It’s like having a charitable savings account with the flexibility to distribute funds to your chosen causes whenever you see fit.

Compared to traditional charitable giving, DAFs offer several advantages:

• Tax deduction: You receive an immediate tax deduction for the full fair market value of your contribution to a DAF in the year you donate.
• Tax-free growth: Assets within your DAF grow tax-free, allowing your charitable dollars to stretch further.
• Flexible giving: You have the freedom to recommend grants to qualified charities at your own pace, even years after your initial contribution.
• Streamlined administration: DAFs simplify record-keeping by consolidating all your charitable giving activity into a single account.

Unlike traditional charitable giving, where donations are made directly to charities and must be tracked individually, DAFs offer the unique benefit of consolidating all contributions and grants into a single account. This not only simplifies administration but also provides the opportunity for tax-free growth of donated assets.

These benefits make DAFs an attractive option for supporting your charitable causes while enhancing your tax situation.

Leveraging DAFs for California Residents

DAFs offer Californians some unique tax advantages and strategic philanthropy benefits.

Tax Benefits in California

California’s state income tax rates rank among the highest in the US and can greatly affect your overall tax liability. Donor-advised funds can provide substantial state tax benefits.

Reduced state income taxes: By contributing appreciated assets to a DAF, you can claim a state income tax deduction for the asset’s total fair market value. This strategy maximizes your charitable contribution and helps you avoid capital gains taxes on the appreciated value, resulting in significant tax savings, especially for those in higher tax brackets.

Retirement tax benefits: DAFs can also be integrated into your retirement planning in California. For instance, using qualified charitable distributions (QCDs) from IRAs, individuals aged 70 1⁄2 or older can transfer up to $100,000 annually to a DAF without the distribution being counted as taxable income. This can help reduce your taxable income and satisfy required minimum distributions (RMDs).

Strategic Philanthropy

Beyond tax benefits, DAFs can also be a valuable tool for integrating philanthropy into your overall financial plan. Here are a few ways:

• Strategic grantmaking: DAFs allow you to “bunch” charitable contributions in high-income years to maximize your tax deduction. This flexibility can be particularly helpful for Californians with fluctuating income levels.
• Donating complex assets: DAFs allow you to donate complex assets, such as appreciated stock or real estate, without the hassle of selling them first. This can simplify the giving process and generate more significant tax advantages.
• Long-term care planning considerations: If you’re planning long-term care in California, DAFs offer an efficient way to manage and distribute charitable giving. By consolidating donations into a DAF, you simplify estate planning and ensure your philanthropic intentions are honored without the administrative burden on your heirs.

It’s important to note that tax laws can be complex, and consulting with an experienced financial advisor in California, like those with Bulman Wealth, and a tax advisor is essential to determining how DAFs may impact your specific tax situation.

Choosing the Right DAF Sponsor

Selecting the right DAF sponsor is crucial to maximizing the benefits of your charitable giving. Here are some key factors to consider:

• Fees and investment options: DAF sponsors charge various fees, and some offer investment options that may better align with your financial goals. Be sure to compare administrative fees, investment management fees, and any other associated costs.

• Grant recommendation process: Look for a sponsor with a streamlined and efficient grant recommendation process. This ensures that your grants to charities are processed quickly and accurately.

• Customer service and support: Having access to knowledgeable customer service can be invaluable in navigating the DAF process. Consider sponsors that provide reliable support, including online resources and personalized assistance.

• Reputation and stability: Choose a DAF sponsor with a strong reputation and financial stability. This ensures that your funds are managed responsibly and that the sponsor will be able to fulfill its obligations over the long term.

At Bulman Wealth Group, we understand the specific needs and challenges California residents face with charitable giving and tax planning. We can help you select a DAF sponsor that matches your needs and preferences.

Bulman Wealth Can Help With Your Legacy Planning

Donor-advised funds offer a compelling combination of strategic philanthropy and tax benefits for Californians. Our experienced financial advisor with a fiduciary duty can help you explore whether a DAF is the right fit for your legacy planning goals and financial situation.  

At Bulman Wealth Group, we’re passionate about helping our clients make informed decisions about their investments and philanthropy. Our wealth management services break down complex concepts into easily digestible steps, focusing on income, investment, taxes, healthcare, and legacy planning.

We look forward to partnering with you on your charitable journey.

Contact us today to schedule a complimentary consultation with one of our financial advisors, or call (916) 458-8199.

Together, we can discuss your philanthropic goals, assess your financial situation, and determine if a DAF makes sense for you. Let’s turn your charitable aspirations into a reality!