Morgan Stanley
  • Wealth Management
  • Oct 24, 2022

Donor Advised Funds: A Tax-Efficient Way to Manage Your Giving

There’s more to charitable giving than you may realize. Here’s one method that provides flexibility and can help maximize your impact.

When it comes to helping others, people are opening their wallets—wide. Charitable giving topped $484.85 billion in 2021. Though the total giving grew 4% between 2020 and 2021 in current dollars, giving remained relatively flat when adjusted for inflation, with a change of -0.7%. On an individual basis, giving totaled an estimated $326.87 billion.1

There are approaches to philanthropy beyond the contribution of assets directly to a nonprofit. If you’re planning to give to charity before the end of the year but need more time to decide where to ultimately direct those assets, or would like to donate to a number of different causes over the course of many years, a donor advised fund (DAF), such as MS GIFT, may be a good option. Administered by a 501(c)(3) public charity, a DAF manages charitable donations on your behalf, while giving you important—and immediate—benefits.

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The Features of Donor Advised Funds

DAFs offer several important features. Because DAFs are public charities, you’ll be eligible for a federal charitable income tax deduction when you contribute to the fund, even if:

  • You want to delay decisions on where your money is going in order to develop a more thoughtful and impactful giving strategy
  • You choose to give to qualifying public charities in installments over time

Let’s say you hold securities that have appreciated significantly. By donating the securities to a DAF, you will not owe the potential capital gains tax on the appreciation, and can give yourself time to decide when and where to make your charitable gifts. Between the time you make a donation to a DAF and when you finalize your giving strategy, your assets can be invested, with the potential to grow tax-free.

DAFs can also offer you a highly effective way to donate more complex assets, including shares of privately held companies, real estate, art, automobiles or other items that may need to be appraised.

Interested in donating cryptocurrency? You can now contribute gifts of crypto assets including Bitcoin and Ethereum to your Morgan Stanley GIFT account.

DAFs streamline your paperwork and administer disbursements, providing you with necessary documentation to claim a federal income tax deduction.2 You will also receive regular statements listing gifts, grants, fees, and investment performance for your records.

Morgan Stanley offers a suite of philanthropic services through the Morgan Stanley Global Impact Funding Trust (MS GIFT). The dedicated team of Morgan Stanley GIFT professionals can work with your Financial Advisor to help manage and administer your DAF. 

Immediate Financial Benefit, Long-Term Influence

As stated above, DAFs allow you to recommend the amount and timing of grants to qualified charitable organizations, including other tax-exempt public nonprofit organizations, U.S. religious organizations, and U.S.-qualified domestic and foreign charities. At an additional cost, Morgan Stanley GIFT donors may also make recommendations to other domestic and foreign establishments that do not qualify as U.S. public charities.

DAF investment options typically include separately managed accounts, mutual funds, and exchange-traded funds. Morgan Stanley GIFT's Investing with Impact pools enable clients to align investment decisions with impact priorities across their portfolio.  The Investing with Impact pools available through Morgan Stanley GIFT employ highly regarded third-party investment managers with demonstrated experience in generating positive environmental and social impact.

Most DAFs require a minimum initial contribution and minimum grant recommendation. Morgan Stanley GIFT's minimum initial contribution is $25,000 and the minimum grant recommendation is $250. For individuals, the maximum federal income tax deduction when gifting cash to a DAF is 60% of adjusted gross income (AGI), although you may carry forward deductions exceeding AGI limits for up to five years. Families and organizations may also make gifts to the DAF. Note: All donations you make to a DAF are irrevocable.

Giving Back as a Family

A DAF gives you the flexibility and time to involve family members in your strategic giving, providing you the opportunity to share the causes that are important to you and learn more about those important to your family members. You may name a Successor to continue managing your giving plan when you are no longer able to do so. And, if you already have a DAF, you may open a “NextGen DAF” with a lower minimum investment, giving your children and grandchildren the ability to give to their own causes and showing them the importance of giving.

Is a Donor Advised Fund Right for You?

DAFs are an accessible way to enjoy immediate tax benefits and are among the easiest and most tax-advantaged ways for you to facilitate your charitable giving. They are especially useful in years when you are seeking a charitable deduction, but also desire more time to finalize a giving strategy. By donating to a DAF by Dec. 31st, you could achieve your deduction target.

Consult your Financial Advisor to explore whether a DAF is right for you, as well as to create a structured giving approach that maximizes your impact, while providing more flexibility to realize your legacy.

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1 Source: The 2022 Giving USA Report: Giving USA: The Annual Report on Philanthropy for the Year 2021 (2022). Chicago: Giving USA Foundation.

2The taxpayer will have to include a form in their tax return filing and may need to get a qualified appraisal.  The DAF would not do this on their behalf.

The Morgan Stanley Global Impact Funding Trust, Inc. (MS GIFT) is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended that sponsors a donor advised fund program. MS Global Impact Funding Trust (MS GIFT) is a donor advised fund. Morgan Stanley Smith Barney LLC provides investment management services to MS GIFT. Back office administration provided by RenPSG, an unaffiliated charitable gift administrator.

Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and 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, charitable giving, philanthropic planning and other legal matters.

While we believe that MS GIFT provides a valuable philanthropic opportunity, contributions to MS GIFT are not appropriate for everyone. Other forms of charitable giving may be more appropriate depending on a donor’s specific situation. Of critical importance to any person considering making a donation to MS GIFT is the fact that any such donation is an irrevocable contribution. Although donors will have certain rights to make recommendations to MS GIFT as described in the Donor Circular & Disclosure Statement, contributions become the legal property of MS GIFT when donated. The Donor Circular & Disclosure Statement describes the risks, fees and expenses associated with establishing and maintaining an MS GIFT account. Read it carefully before contributing.

Although the statements of fact and data in this material have been obtained from, and are based upon, sources that the firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. This material is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

This material may provide the addresses of, or contain hyperlinks to, websites. Morgan Stanley is not implying an affiliation, sponsorship, endorsement with/of the third party or that any monitoring is being done by Morgan Stanley of any information contained within the websites. Except to the extent to which the material refers to website material of Morgan Stanley Wealth Management, the firm has not reviewed the linked site. Equally, except to the extent to which the material refers to website material of Morgan Stanley Wealth Management, the firm takes no responsibility for, and makes no representations or warranties whatsoever as to, the data and information contained therein. Such address or hyperlink (including addresses or hyperlinks to website material of Morgan Stanley Wealth Management) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through the material or the website of the firm shall be at your own risk and we shall have no liability arising out of, or in connection with, any such referenced website. Morgan Stanley Wealth Management is a business of Morgan Stanley Smith Barney LLC.

Due to the new and evolving nature of digital currencies and the absence of comprehensive guidance, many significant aspects of the tax treatment of Digital Assets are uncertain.  Prospective donors of crypto currency should consult their own tax advisors concerning the tax consequences to them regarding the purchase, ownership and disposition of Digital Assets, directly or indirectly through a fund or product, under U.S. federal income tax law, as well as the tax law of any relevant state, local or other jurisdiction.

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