This post was authored by Salvatore M. Capizzi, Dunham's Chief Sales & Marketing Officer. If you have questions concerning today's topic, please call us at (858) 964 - 0500. Hold us to higher standards.

When the sale of a stock yields substantial gains, it will trigger a tax bill that, at times, can be sizeable. There could be significant tax advantages to donating a portion of the stock sale to the Dunham Donor-Advised Fund.

A philanthropically-minded family can use the fund to decrease their tax liability and create a charitable giving strategy. Their efforts will leave a positive impact for their children and grandchildren to follow.

Case Study

A married couple owned a technology stock for many years and were one of the early investors into the company. In total, they invested $500,000 and are delighted to see the stock has a current market value of $3 million.

They decided to sell the stock and their accountant explained that their tax situation would be as follows:

  • A 20% federal capital gains tax.
  • A 7% state tax.
  • A 3.8% net investment income tax.

Combined, these will total a 30.8% tax levied on the amount exposed to taxation.

The couple expressed to their financial advisor how their family would like to be more charitably active. Their financial advisor suggests donating $500,000 of the equity from the sale of the stock to the Dunham Donor-Advised Fund. This would decrease the taxes paid on the gain and establish their family gifting program through the Donor-Advised Fund ("DAF").

Let us examine three possible scenarios in the sale of the stock:

  • They sell and make no donation.
  • They sell and make the donation as cash after they sell the stock.
  • They transfer the $500,000 of stock to the Dunham Donor-Advised Fund and let the fund sell the stock to eliminate the taxes on those shares. They also receive a tax deduction while generously funding their DAF to make donations and impact investing.

Information and hypothetical case studies are made available to you for hypothetical illustrative purposes only and are not intended to provide investment or tax advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances and do not guarantee that your objectives will be achieved. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.

As you can see, having the Dunham Donor-Advised Fund sell the portion of the stock inside the donor-advised fund creates the most significant tax efficiency. Not only did they receive a tax deduction on the gift, but they eliminated the capital gains on the portion the Dunham Donor-Advised Fund sold.

Said differently, the $500,000 donation placed in the family’s Dunham Donor-Advised Fund only cost the family $151,667 net after taxes. Yet, their family will bestow $500,000 worth of generosity, plus the potential investment return on the account will compound tax-free.

Find out how the Dunham Donor-Advised Fund can help you leave a positive impact for your family to follow by clicking the button below by clicking the button below.

More Information

(1) Please remember that there are annual income tax deduction limits for gifts made to public charities, including donor-advised funds. For contributions of non-cash assets held more than one year, like the hypothetical situation above, it is 30% of adjusted gross income (AGI) for the tax year of the gift. It is 60% of AGI for contributions of cash. You may carry over donation amounts in excess of these deductions for up to five tax years.

Financial Advisors: To receive this blog post as a white paper, fill out this form.

DAF Disclosures:

This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel. Any investment products or services named herein are for illustrative purposes only, and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance.

Federal and state laws and regulations are complex and subject to change, which can materially impact your results. Charitable deductions at the federal level are available only if you itemize deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy or completeness of the information provided. Dunham Associates & Investment Counsel, Inc. (“Dunham”) cannot guarantee that such information is accurate, complete or timely; and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.  Always consult an attorney or tax professional regarding your specific legal or tax situation.

All financial decisions and investments involve risk, including possible loss of principal. The market value of the Dunham Donor Advised Fund (“Dunham DAF”) is not guaranteed by UI and may fluctuate depending upon investment results.

Investors should carefully consider a fund’s investment goals, risks, sales charges and expenses before investing. The prospectus contains this and other information. Please read the prospectus carefully before investing or sending money.

A donor advised fund (“DAF”) is a separately identified account that is maintained and operated by a section 501(c)(3) organization, and is not a registered investment company.

The Dunham DAF is powered by University Impact (“UI”), a registered 501(c)(3) nonprofit in the United States who manages the charitable aspects of the Dunham DAF.

UI charges fees to the Dunham DAF for administrative services in accordance with the Fee Schedule as outlined in Appendix A of the UI Donor Advised Fund Agreement (“Agreement”). Accounts are required to maintain a $1,000 minimum balance and are subject to support investment fees as explained in the Agreement. A list of current fees and initial gift minimums is available upon request. UI reserves the right to change its fee or minimum policies at any time. There may be additional fees charged by the Financial Advisor that is separate from UI’s administrative and impact investment fees.

Contributions to the Dunham DAF are irrevocable contributions made to UI, a public charity.

Assets contributed to the Dunham DAF (once liquidated, if applicable) will be invested in the Dunham Asset Allocation Program sponsored by Dunham.  Investment allocations may be changed according to Dunham’s standard policies and procedures.  UI may hold up to 5% of the Dunham DAF assets in non-interest bearing cash at any time.

As the Program Sponsor, Dunham charges each donor a single service program fee (“Program Fee”) not exceeding 0.25%.

In addition, a Financial Advisor may charge a client/donor an asset-based advisory fee (“Advisory Fee”) as specified in the Advisory Agreement. Detailed advisory and expense fee information about the Dunham Asset Allocation Program is available in the Wrap Fee Program Brochure available upon request.

As investment adviser to the Dunham Funds, Dunham receives the investment advisory compensation described in the Dunham Funds’ prospectuses and such fees are borne by all shareholders in the Dunham Funds, including the donor.

Dunham & Associates Investment Counsel, Inc. is a Registered Investment Adviser and Broker/Dealer. Member FINRA/SIPC. Advisory services and securities offered through Dunham & Associates Investment Counsel, Inc.