Guiding Your Clients in Charitable Planning with Alternative Investments
As a financial advisor, helping your clients navigate their philanthropic goals is essential. Donor-advised funds (DAFs) have become a popular vehicle for charitable giving, offering flexibility, tax advantages, and a streamlined process for managing donations. While traditional investments like stocks, bonds, and mutual funds have long been staples in DAF portfolios, incorporating alternative investments (“Alts”), or illiquid investments, allows for further diversification and non-correlated returns. Leveraging innovative DAFs, such as TIFIN Give, offers an alternative to private foundations. We expect the use of Alts in DAFs to grow commensurately with the fast growth of DAFs as a charitable option.
The Flexibility of Donor-Advised Funds
DAFs offer flexibility, allowing clients to make contributions at any time, receive immediate tax deductions, and recommend grants to their favorite charities at their own pace. This flexibility extends to investment choices, enabling clients to diversify with alternative investments like evergreen funds, private equity, hedge funds, venture capital and impact investments, which have the added benefit of aligning with a family’s charitable causes.
Advantages of Alts in DAFs
Incorporating alternative investments into DAFs offers several advantages.
- Enhanced Growth Potential: Investing in high-growth potential assets like Alts can increase the fund’s value, allowing for more substantial charitable contributions.
- Diversification: Including Alts can diversify the DAF’s portfolio, reducing risk and enhancing long-term growth opportunities.
- Tax Management: Clients can contribute appreciated alternative assets, such as privately held business shares, to their DAFs. This avoids capital gains taxes and maximizes the amount available for charitable purposes.
- Alignment with Donor Expertise: Clients with expertise in specific Alts can align their philanthropic strategies with their investment knowledge, creating a more engaging and personalized giving experience.
For instance, a client who contributes shares of a privately held company to their DAF can avoid capital gains taxes on the appreciated value when the DAF sells the shares, resulting in a larger pool of funds available for charitable grants. While few charities are set up to directly receive Alts, DAF solutions like TIFIN Give help the donor get full value for the donation without liquidating the assets or incurring capital gains taxes.
Innovative Technology Enhancing DAF Management
Managing Alts in DAFs can be complex, but technology advancements remove the barriers to more easily include these strategies in philanthropic planning. Platforms like TIFIN Give are at the forefront of this innovation, aided by a core belief in investment flexibility for donors and their advisors. In summary, TIFIN Give combines technology, simplifying the investment and grantmaking process within a DAF, with investment flexibility, supporting advisors’ desire to create customized investment strategies for their firm. This combination is different from many other providers.
Maximizing Philanthropic Impact
By incorporating Alts into their DAFs, clients can potentially achieve higher returns, translating into more funds for charitable causes. This strategy diversifies the portfolio, may reduce risk, and may increase the potential for long-term growth.
Additionally, some alternative investments are very cause-focused which helps donors align their DAF investment allocation with the causes they ultimately support.
With support from TIFIN Give, advisors and donors can seamlessly integrate these investments into their DAFs, maximizing their philanthropic impact. This creates the opportunity for ultra-high-net-worth (UHNW) donors to replicate the benefits and investment flexibility of a private foundation without the administrative burden since most private foundations operate like perpetual giving funds.
Find Flexibility with TIFIN Give
Investment flexibility brings simplicity and accessibility to an otherwise complex process.
This flexibility, combined with the tax advantages and the potential for higher returns, makes this an attractive strategy for donors. TIFIN Give makes it easier to include Alts in DAF allocation and ensures donors can focus their efforts on their charitable goals. As the philanthropic landscape continues to evolve, incorporating Alts into DAFs represents a forward-thinking approach to creating lasting, meaningful impact.
For more information on how TIFIN Give can help you integrate alternative investments into your clients’ giving experience, visit TIFIN Give.
Disclosures:
Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested.
Interests are only being offered to institutional investors as well as persons who qualify as Accredited Investors under the Securities Act, and a Qualified Purchaser as defined in Section 2(a)(51)(A) under the Company Act or an eligible employee of the management company. This presentation does not constitute an offer to sell or a solicitation of an offer to buy Interests in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. There will not be any public market for the Interests.
Neither Asset Allocation nor Diversification guarantee a profit or protect against a loss in a declining market. They are methods used to help manage investment risk.