In virtually every conversation with new clients, Financial Advisor Bob Jeffrey, who leads the seven-member Jeffrey Group at Morgan Stanley in Baltimore, Md., raises the question of charitable giving. He asks what their charitable giving habits have been, and about "how we can help make sure their giving is as efficient as possible," he says. "If they're new to the topic, we judge their interest and explain how, by working with their tax advisors, charitable giving can also be a strategic way to help manage their taxes."
According to Jeffrey, one of the best ways to do that is through a vehicle called a donor-advised fund, or ("DAF"), which is a charitable giving instrument administered by a public charity as a way to manage donations on behalf of individuals, families, and organizations.
Morgan Stanley's DAF, called the Morgan Stanley Global Impact Funding Trust ("GIFT"), provides administrative convenience and cost savings, as well as potential tax advantages while helping clients support their favorite causes. Established more than a decade ago, GIFT held $741 million in assets under management as of June 30, 2015. "GIFT makes it simpler to establish a meaningful philanthropic strategy, make contributions, and designate grants," Jeffrey explains. "And it is detailed in one comprehensive reporting statement."
Using DAFs to Manage Taxes Efficiently
When Jeffrey and his team recently learned that a publicly traded company was about to be bought out for cash, they immediately saw an opportunity to help a number of charitably inclined clients. Upon news of the buyout, Jeffrey and his team surveyed their clients to determine who owned that particular security. They then cross-referenced the list to identify any clients who also had DAF accounts at Morgan Stanley.
Jeffrey advised those with DAF accounts to confer with their tax specialists and determine the potential tax advantage of putting this company's stock into the DAF before the deal closed. "More than 85% of clients contacted agreed to do it—and said they appreciated us reaching out proactively," says Jeffrey.
For clients with a concentrated stock position, Jeffrey considers the use of a DAF a potent match. "For a client with a portfolio that has 20% or more holdings in a single company stock, that concentrated position is of course a risk. If you sell it, there can be a big tax consequence, and if you keep it, you have the risk of not being well diversified in your portfolio," says Jeffrey.
"But donate stock to a DAF, and you have the potential of a tax deduction and you may help reduce your overall portfolio risk" he adds. "Or simply donate some and sell some; the donation may help offset the taxes on the shares sold."
For certain clients, using a DAF can be a better choice than establishing a private or family foundation, which is much more complex, costly and time-demanding. For example, an elderly client who had his Financial Advisor working to set up a private foundation "just could not commit to the time and effort it would demand, but found the simplicity and ease of the DAF more to his liking," says Consulting Group Regional Director Ross Richards.
The Gift of Conversation
The heightened interest in giving can be attributed to strong and positive markets. "Many clients have highly appreciated securities, and find that the ability to donate those securities, eliminate the capital gains tax on them, and open a charitable giving account that can distribute over a lifetime is a very powerful mechanism," says Richards.
Perhaps the greatest benefit of discussing clients' charitable wishes is the opportunity to better connect with them. "Anytime we discuss charitable giving, we get a chance to talk to our clients about something other than finances," notes Jeffrey. "And they get something to talk with their children and grandchildren about–giving back."
To learn more about philanthropy management and how a donor-advised fund might be right for you, contact your Morgan Stanley Financial Advisor or Private Wealth Advisor.
Asset Allocation and diversification do not assure a profit or protect against loss in declining financial markets.
Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Smith Barney Financial Advisors or Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.
Morgan Stanley GIFT, Inc. is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, and Morgan Stanley Global Impact Funding Trust is a donor-advised fund. Various divisions of Morgan Stanley Smith Barney LLC provide investment management services to Morgan Stanley GIFT.
This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be suitable for all investors. Morgan Stanley Wealth Management recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives.
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