Charitable Giving Strategies & Donor-Advised Funds

Happy New Year! 🥳 Thinking about giving to charity in the year ahead? In this episode, we dive into charitable giving alongside donor-advised funds (DAFs) and how they can help you give intentionally, maximize your impact, and plan for future charitable goals. Whether you’re looking to support causes you care about today or set up a strategy for the year ahead, we break down the key steps to make your giving effective and tax efficient.

For the video version, show notes, and transcript, visit thewealthmindsetshow.com/s2e27

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Chapters

• 1:02 Life Updates: Jess's Christmas Cookies & Austin's Love for Food
• 2:48 Gifting Appreciated Securities Vs. Cash Directly to Charity
• 8:21 How Donor-Advised Funds Works & Its Benefits
• 12:09 Keep Your Investment Portfolio Balanced While Giving
• 13:56 Final Thoughts on DAFs & Charitable Giving

Transcript

You're listening to the Wealth Mindset Show, where Hixon Zuercher Capital Management's team of finance professionals, portfolio managers, and a life coach come together to tackle complex topics in finance and retirement planning so you don't have to. From investment strategies and wealth management to tax planning, retirement income, and aligning your money with your values and purpose, the Wealth Mindset Show offers the tools to thrive.

Austin Wilson:

All right. Hey, hey, hey, welcome back to Wealth Mindset Show where the Hixon Zuercher team helps you manage wealth, navigate retirement, make smart decisions for a secure, meaningful future. I'm Austin Wilson, Director of Investments at Hixon Zuercher Capital Management.

Josh Robb:

I'm Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management. Today we're joined by Jessica Hinks, one of our advisors here, and she's going to help us talk about charitable giving and also donor-advised funds and kind of what that looks like as we are kind of ending a year and heading into a new year, those things to be thinking about.

Jessica Hinks:

It's one of my favorite topics, by the way.

Josh Robb:

Yes.

Jessica Hinks:

Charitable giving.

Austin Wilson:

But before we get to giving, Jess, what's going on? What's your life looking like?

[1:02] - Life Updates: Jess's Christmas Cookies & Austin's Love for Food

Jessica Hinks:

Oh, you know it's the holidays.

Austin Wilson:

Yeah.

Josh Robb:

Gingerbread cookies?

Jessica Hinks:

I haven't made gingerbread cookies. My husband made his famous peppermint snap cookies last night.

Austin Wilson:

Okay. Those are good.

Jessica Hinks:

A couple while before that, I made those little Hershey kiss blossoms. I don't know if those are overtly Christmas, but we always make them around Christmas.

Austin Wilson:

Delicious.

Josh Robb:

It doesn't matter when you make them. Those are good.

Jessica Hinks:

Yeah. So between making holidays magical for the family and tax planning season here at the office.

Josh Robb:

There it is. It's a double whammy.

Jessica Hinks:

'Tis the season.

Josh Robb:

That's right. Exciting. We did those little pretzels and then you do a rollover with M&Ms.

Jessica Hinks:

Those are fun.

Josh Robb:

I made those the other night and they were really good.

Jessica Hinks:

You can make those for any holiday. For Halloween, Thanksgiving, orange and yellow, Christmas, red and green, Valentine's, pink and red.

Josh Robb:

They're good, easy, and they're so good. I eat way too many of them.

Austin Wilson:

That's the thing this year. What those things have for you is-

Josh Robb:

Like a handful.

Austin Wilson:

The crunch and the salt and the sweet.

Josh Robb:

Yeah. It's a good...

Austin Wilson:

It's like, you've got to eat it. My mother-in-law made these little snowballs, we call them or whatever. They're really kind of dense, dry things, but they're so flavorful and delicious. And they're so small that I could...

Josh Robb:

What's in them?

Austin Wilson:

Flour, sugar, butter. That's it. Flour, sugar and butter. It's awesome.

Josh Robb:

That'd be good. Yeah.

Austin Wilson:

And I can eat a 100, and I did.

Jessica Hinks:

Oh, for the record listeners, I've always told Austin that there are two things. I'll always take his advice and recommendations on. One, investment management. Two, food. I will always take Austin's-

Austin Wilson:

I do love food.

Jessica Hinks:

He has always been the best and most reliable critic.

Josh Robb:

He's very enthusiastic about food. So everything he eats scores like 9 out of 10. And it's like, "Austin, they can't all be best you've ever had?"

Jessica Hinks:

I trust him on it.

Austin Wilson:

I've probably been more right than wrong, but Chase would say I've been wrong before.

Josh Robb:

No.

[2:48] - Gifting Appreciated Securities Vs. Cash Directly to Charity

Austin Wilson:

But yes, people have been charitable with giving us some food. So let's talk about being charitable with our giving. So yeah, this is something we often think of towards the end of the year, but really this can be done at any point.

Josh Robb:

Yes.

Austin Wilson:

But as you're thinking, tax planning, all these other things, maybe some opportunities here. If you're charitably inclined and you're sitting on appreciated stocks, things that have gone up a lot in value, these could also be mutual funds or ETFs in a brokerage account. So think a taxable account. This is a great opportunity. So, Jess, talk a little bit about what this can do for you and how this can unlock some value.

Jessica Hinks:

Well, a lot of people have brokerage accounts. If you work with a financial advisor, it's very common to have. So this is assets you've saved outside of retirement accounts like 401ks and IRAs, and they probably have appreciated if you've had them some time. The bad thing about appreciated stocks is if and when you sell them, because you need to live off them, you're probably going to pay a 15% tax on it. If you're high income, maybe 18.3%.

Austin Wilson:

Right.

Jessica Hinks:

Not exciting, right?

Austin Wilson:

No.

Jessica Hinks:

But if you are inclined to give and you are going to give anyway, we would say, "hey, donate your stock worth that same value to the charity, donor-advised fund." And then you don't pay the tax and neither does the charity. So if you're going to give anyways, might as well get a 15% discount while doing it.

Austin Wilson:

Absolutely.

Josh Robb:

And the other side is you give cash. So two ways of giving to charity is just straight cash donations. And we've talked about in other episodes, all the different ways of doing that. What we're talking about this instance is instead of giving them the cash, you are giving them something that you've invested that has grown and then you could realistically buy that back, reset your cost basis. But that gift is what we call a gift in kind. It's not a non-cash gift. And so you can give it directly to a charity or into a donor-advised fund.

Austin Wilson:

Correct.

Josh Robb:

And we'll talk about why would you give it to a donor-advised fund versus to charity. But first, why would you give appreciated stock instead of cash?

Jessica Hinks:

Well, cash, you can take a deduction, which is nice. But again, if you have appreciated stock, the only way you're not going to pay tax on that one day is literally if you die. So this is just a good way to offload some appreciated stock you have without paying tax on it. And that's the benefit of doing it over tax. Again, it's like a 15% savings rate.

Austin Wilson:

And if you take the standard deduction, you don't get to itemize your charitable giving.

Josh Robb:

Right.

Austin Wilson:

Now next year-

Josh Robb:

$2,000.

Austin Wilson:

$1,000 per person if you file jointly, at least $2,000 that you can take as a charitable deduction. Now that does have to be cash.

Jessica Hinks:

Yeah, it does. It does. You can't do stock.

Austin Wilson:

So that is a way to get a deduction on your tax return from a cash donation to a charity, not a donor-advised fund, just straight to a charity. But if you have an appreciated stock, but you're going to take the standard deduction, that gift, although you don't get a deductible from your tax return, saves you the capital gain.

Jessica Hinks:

And you don't have to be an itemizer to get the benefit of gifting appreciated stock, because anyone can get benefit from that.

Josh Robb:

Right. So that's the biggest difference between the two. In my mind is if I'm a regular person who takes a standard deduction, I may care about that charity and want to donate. If I give cash, they get a benefit. Next year I may, but up until this point, I wouldn't get any taxable benefit from that cash gift. If it's appreciated security, I don't get anything on my tax return, but I just save 15% on that tax I would've paid.

Austin Wilson:

Well, and the charity doesn't pay tax, right? So they're a nonprofit. They're a 501(c)3. So it does not hurt them at all. So it's really just a way... You go from you paying a decent chunk of tax to no one paying tax, which not great for the government who needs tax revenue, but good for us and we're good for that.

Josh Robb:

They'll get it elsewhere.

Austin Wilson:

Yeah. So here's an example.

Josh Robb:

Yes.

Austin Wilson:

You sell a stock. It's doubled in value. So maybe you bought NVIDIA six months ago, because it just goes up all the time, right? That's a joke, because NVIDIA's done a lot for the last couple of years. But if you sell, Uncle Sam gets a cut of that. So that'd be short term if it's really short, but it could be long-term capital gains rate like we talked about earlier. If you give it, charity gets the full value and you keep the tax benefits. So it's kind of a double whammy.

Josh Robb:

Now you mentioned short term and long term. That is one thing about appreciated security. To get that reduction on the gains, it has to be a long-term security. If you donate a short-term security, you just get the basis.

Jessica Hinks:

Yeah. So just don't. Just make sure the stock-

Josh Robb:

There's no real benefits for short term.

Austin Wilson:

Whole of the year.

Jessica Hinks:

Stock you've owned at least a year before you give it away.

Josh Robb:

Before we get back to today's topic, I wanted to take a quick moment to share something that could really help you on your retirement journey. At Hixon Zuercher Capital Management, we're all about making sure your financial life aligns with what truly matters to you. That's why we created the assessment, are you retirement ready? It's over at hzcapital.com/quiz. It's a quick and easy quiz that helps you figure out how prepared you are for retirement. It only takes a few moments and you might discover what you need to do before you retire, both in the financial and non-financial aspects.

So if you're curious about how ready you are to embrace this new phase, head on over to the website and check it out. Again, that's at hzcapital.com/quiz. Now, let's jump back to our conversation.

Austin Wilson:

So talk next about how a donor-advised fund kind of clears this up, makes it a little less murky.

[8:21] - How Donor-Advised Funds Works & Its Benefits

Josh Robb:

Yes. So if I wanted to, I could give directly to a charity, right? A lot of charities are set up to receive assets, appreciated security. Some do like, we're here in the Midwest, if you have corn or grain, a lot of times you can donate those to a charity as well, and they'll have structured stuff to do it, but not all of them do, especially small charities. They don't know what to do with it. I don't know how to receive this.

So avoid that by putting that into a donor-advised fund, which is a charitable fund that you manage. You get to help direct the money out so you can put the security in and then once it's in that donor-advised fund, you can sell it, turn it to cash. That transition into the fund is where you get your credit. And then the donor-advised fund then can give to the charity, and they are just giving a check or a cash. So then it's easier for that small charity to use it.

Jessica Hinks:

And I want to reiterate, like Josh said, you totally can just give a share of apple to one of your favorite local charities. But I've been calling a lot of charities over the last 10 plus years. 90% of the time you call, you're talking to someone who is very well-meaning, but has no idea what you're talking about. "Oh, we have a brokerage account. The guy who's in charge of it is out of town. Let's wait a couple of weeks while he's back in town. Oh, I think there's a new account number. Don't know what it is." It's just so clunky. So it's just so much easier to go to the donor-advised route. That way you're not putting anyone out and having to wait.

Josh Robb:

And then as we talk about that donor advice, and that's why giving directly to charities can be a hassle or a headache for them. The second one is a donor-advised fund, once the money's in there, you get that credit or deduction or whatever that you're going to get on your tax return. The gift can happen at any point in the future. It's not constrained to just that calendar year of the gift, which is very helpful, especially at end of year if you're saying, "oh, I want to reduce some taxes. I want to give some extra money this year because of high taxes." You could put a bunch in a donor-advised fund, take a big deduction off that income and then give it out over multiple years.

So the donor-advised fund gives you so much more flexibility to give to multiple charities as well. So one share of apple could actually go to three or four charities if you wanted to split it up, whereas giving one share, you can't easily split that between all the charities.

Austin Wilson:

Right.

Jessica Hinks:

Yeah. So to give an example, maybe you sold a business this year or you got a big bonus, sold a rental property, you have a really high income year. And maybe it's going to put you in a bad position where maybe you're going to get some IRMAA Medicare surcharges or you're going to be in a really unfortunate tax bracket, or maybe it's going to affect your healthcare. There's all kinds of reasons you can be penalized for having too high a tax.

If you want to reduce your income, the donor-advised fund is a great time, place, a great place to make one large gift to really reduce your income in one year. And to Josh's point, then over the next 10 years even, you can slowly give it out.

Austin Wilson:

Correct.

Jessica Hinks:

So it's just a really unique and useful tool.

Austin Wilson:

I think something that's also cool about, we call them DAFs, donor-advised funds, is that those funds can remain invested within the donor-advised fund. And there's a number, there's oftentimes, depending on who you open your donor-advised fund through, there's a select limited list of what you can invest in, but it's growing.

So if you make that huge maybe contribution now to reduce your taxes this year, but you don't plan on giving that away all at once, you can give it away over a couple of years or whatever, you can invest that in index funds and all kinds of other things to grow during that time, which can, and as long as the market participates, which we know over the long term it does, actually make your giving even more beneficiary.

Jessica Hinks:

Yeah. It can be almost like creating your own endowment in a way-

Austin Wilson:

Yeah.

Jessica Hinks:

Which is really neat.

Austin Wilson:

Yeah, that is really cool.

[12:09] - Keep Your Investment Portfolio Balanced While Giving

Josh Robb:

Yep. So speaking of investing, so let's say I do want to give appreciated stock. Well, that may mess up my investments because I just got rid of those. So how do you keep your investments aligned with your strategies and where your targets and where you're trying to go for your long-term plan while doing this gifting?

Austin Wilson:

Yeah, that's a great question. So obviously you're going to be, maybe Apple's like yours ia a good example, Jess. So you had a big Apple position and you like your Apple position. It may be, say it's 6% of the S&P 500, maybe it's 6% of your portfolio, you give those appreciated securities to your DAF or the charities specifically, but you're left with a hole where you wanted that Apple to be in your portfolio. Well, you could then backfill it. More cash goes in and you just buy it back, which what you're doing then is resetting your cost basis on Apple to today's value or today's cost, not what it was when you bought it years ago. You still have 6% of Apple, but all of a sudden your gains start today. They didn't start where it was. So you can just reset that each time you donate.

Josh Robb:

And the idea is if I was going to write a check to the charity, I have the cash. So instead of writing that check, I give the appreciated stock and use that cash I was going to give to buy that holding back.

Jessica Hinks:

I always tell people, don't donate to charity just because of taxes. Only donate if you were feeling like you wanted to give anyways and then just we can help you find the tax efficient way to do it, because that would be silly.

Josh Robb:

Absolutely.

Austin Wilson:

There's no way that the donation itself makes-

Jessica Hinks:

Makes you money.

Austin Wilson:

Yes. It is tax savings, but that's only because you did an action, which was a gift away of your assets to a nonprofit. So you're right, it doesn't in any way make sense unless you are already planning on supporting that charity.

Josh Robb:

Absolutely.

[13:56] - Final Thoughts on DAFs & Charitable Giving

Austin Wilson:

And then at that point, optimize it so you get a benefit as well. So Jess, talk a little bit more about, and just kind of wrap up the thoughts on why DAFs are good for not just the ultra wealthy. They can be good for anyone.

Jessica Hinks:

Well, aside from all the tax benefits we just described, they're just so convenient. Your local community foundation, the Hancock County Community Foundation has tools, a donor-advised fund you can use. I know that supports a community. Fidelity has one. You can see it right there along with all your investment accounts. You can just log right in, look up a charity you want to donate to, hit send, send it from one Fidelity account, your stocks to the donor-advised fund. You can set reoccurring gifts if you give to a church or anywhere regularly. It's just so simple.

Josh Robb:

And what is also nice too, let's say I give to 10 different organizations throughout the year. Tracking all those receipts is a headache. But if I put all the money in a donor-advised fund and then gift to those 10, I have one receipt for my tax returns, which is the gift into the donor-advised fund.

So if you are one that does support many charities, you can simplify collection of all your tax documents by funneling it through a donor-advised fund because then that's the only trackable taxable action you need to be aware of.

Jessica Hinks:

It's also a really good way you can give anonymously, but still get a tax benefit, because once it's in a donor-advised fund, you can name the fund whatever you want and you can give to whomever you want.

Josh Robb:

And a lot of the funds or the organizations allow you to do an anonymous gift straight from there. And so you get the tax return, you can be anonymous.

Jessica Hinks:

For those of you who like to be like the Robin Hoods of the world.

Josh Robb:

Yes.

Austin Wilson:

That's right. Awesome.

Jessica Hinks:

Do good in secret.

Austin Wilson:

Well, that is donor-advised funds and charitable giving. And again, we mentioned that this is often something that comes to mind towards the end of the year, but really it can be done anytime. This is just something to talk to your financial advisor about. So maybe you're starting to set yourself up for 2026 or whenever you're listening to this, this is a great time to just be thinking about what you can do to, yes, support the things you care about, support the things that you really care about the cause, but also, yeah, we like to minimize taxes when we can. It's a great thing.

And if you can do both, hey, more power to you. So if today's episode sparked some interest, it was insightful for you, don't forget to hit that subscribe button on your podcast so you don't miss any episodes. Make sure you follow us on social media. We do like to stay in touch with our listeners on social media. We're pretty connected out there as well. And if you're ready to invest with us or interested in what we do at Hixon Zuercher Capital Management, visit hzcapital.com. You can check out us there. Otherwise, have a good one and we'll talk next time.

Josh Robb:

Talk to you later. Thanks. Bye.

Thank you for joining us at the Wealth Mindset Show, where we tackle the complexities of finance and life planning to help you align your wealth with your values. We hope today's conversation provided value and clarity as you navigate your financial journey.

Your hosts work for Hixon Zuercher Capital Management, and all opinions expressed by them or any podcast guest are solely their own and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions.

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