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Monday, April 29, 2024
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Case Studies |
Helping Victims of Crisis with a DAF
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Case:
David Hall, 55, is a long-time fire fighter with numerous medals and recognition for bravery. After 25 years of service to his city, David reluctantly decided five years ago to retire due to an injury. He has become a very successful banker during that time, yet he still remains very close to his local fire fighting brothers and sisters. In fact, he is a regular attendee of fire fighter events and fundraisers.
Tragically, last week during a terrorist attack on David's city, thousands of lives were lost. In addition to the innocent victims who lost their lives, many fire fighters and police officers were killed in the line of duty. David, as well as millions of other Americans, is devastated by this tragedy. Not surprisingly, David immediately volunteered his time and energy in the rescue and recovery effort. David also wishes to help financially, but realizes that the needs of the victim's families and the city will vary over the long rebuilding process. Therefore, David is uncertain exactly how best to financially help.
Question:
How can David financially support victims and their families, yet maintain flexibility for the changing needs of those in crisis? What are the tax benefits and considerations that David should take into account?
Solution:
David's attorney suggested creating a Donor Advised Fund with the local community foundation. David could transfer cash and property to the DAF and then recommend grants to organizations on an 'as needed' basis. This would allow David to help different areas of the city over time and support new challenges as they arise. Upon learning about this plan, David is very pleased that his one-time gift would in fact be an ongoing gift of encouragement and support.
David's attorney recommends that David fund his DAF with $50,000 of cash and $150,000 of appreciated property. The cash would give the DAF liquidity to make immediate grants to the community, which is an important goal for David. With respect to the appreciated property, David decides to use a piece of investment real estate he bought seven years ago for $50,000. He opted against using his stock holdings because of the sharp drop in value after the attacks. The DAF would eventually sell the land tax-free and use the proceeds for future grants. The tax benefit to David would be a $200,000 charitable tax deduction this year and a bypass of $100,000 of capital gains on the land.
Consequently, David enthusiastically agrees to the creation of the "Community Relief Donor Advised Fund." He funds the DAF, and immediately recommends that the first grant is made to the Fallen Fire Fighters Fund - a fund that David places closest to his heart.
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