How Donor-Advised Funds Simplify Charitable Giving And Maximize Tax Benefits with Kyle Casserino – Ep 085

Many retirees want to give back—but aren’t sure how to do it in a way that’s financially savvy and tax-efficient. If you’ve ever wondered how to streamline your charitable giving, take advantage of smart tax strategies, or leave a lasting legacy without the administrative burden, we have the perfect guest to help with those important decisions.

Today, Matthew Peck is joined by Kyle Casserino, VP of Charitable Planning at Fidelity Investments. With years of experience in philanthropic financial strategies, Kyle walks us through the fast-growing world of Donor-Advised Funds (DAFs) and how they can help individuals make a greater impact while minimizing taxes. From understanding the history and purpose of DAFs to exploring real-life scenarios where they make the most sense, Kyle explains why this tool is increasingly popular among charitably inclined investors.

In this conversation, you’ll learn how Donor-Advised Funds compare to private foundations, how to give appreciated assets like stocks instead of cash, and why these accounts are especially valuable for high-income earners, business owners, and those with large tax events. Whether you’re already giving or planning to give in the future, you’ll walk away with actionable strategies to make your charitable dollars go further.

In this podcast interview, you’ll learn:

• Why Donor-Advised Funds are a flexible, low-maintenance alternative to private foundations.
• How giving appreciated stock can help you avoid capital gains taxes.
• The advantages of funding a DAF in high-income years to “pre-pay” future giving.
• Why Donor-Advised Funds can help simplify record-keeping and tax filing.
• How DAFs support legacy planning, including multi-generational giving.
• The biggest differentiators of foundations versus Donor-Advised Funds
• Why timing, tax brackets, and estate size matter when planning charitable gifts.

Inspiring Quotes

• “Cash is the worst asset you can give to charity.” – Kyle Casserino

• “If they’re giving the right asset at the right time, they may not even have to factor it into their lifestyle. They’re not going to dip into their own pockets to give to charity.” – Kyle Casserino

• “Candidly, most people have a charity or a cause they’d rather see the money go to than Uncle Sam.” – Kyle Casserino

Interview Resources

• Fidelity Charitable
• Fidelity Charitable on LinkedIn | Facebook | Instagram | YouTube | X/Twitter
• Kyle Casserino on LinkedIn
• Fidelity
• Ned Johnson
• Giving USA
• American Red Cross
• Alzheimer’s Association
• Boys & Girls Clubs of America
• Charity Navigator
• GuideStar
• Center for Disaster Philanthropy

[INTERVIEW]

Matthew Peck: Welcome, everyone, to another edition of SHP Financial’s Retirement Roadmap Podcast. I’m your host today, Matthew Peck. A lot of our clients of SHP and the partners and all of the SHP Mates here at our firm hold charitable giving and the idea of giving back extremely important. So, what we wanted to do today was explore that whole world, the official world of charitable giving, not just like walking by the Salvation Army, Santa Claus who has the bell, and you toss some coins in. No. We’re talking about the industry of charitable giving and the tax planning that goes with that, the legacy planning that goes with that. And I think all of our clients and audience here at SHP knows that we’re continuing to provide as many services as possible, and especially to the higher net worth where tax planning and charitable giving go hand in hand.

Now, everyone, no matter where you are on the wealth spectrum, obviously, charitable giving and this is going to be for you, but when it combines tax efficiency and charitable giving, you sort of need a partner, you need someone that kind of understands that landscape. And so, today is our first step down that journey. Now, looking forward to having sort of in-person events and different things along those lines, but today is our first step down that journey to understand how tax planning and charitable giving and how that industry all works together. Now, SHP is very proud of all the things that we do well, but we also know the limits of our knowledge, and we know we need to have a specialist in here.

And so, we’re pleased today to have Kyle Casserino. Hopefully, I get that right. He’ll hit me across the head if not, and I’ll say it a couple more times, but we have Kyle Casserino of Fidelity, who is a VP of Charitable Planning and we’re honored to have him on board because I know he is going to have a wealth of information for myself, personally, as I understand it better, but also for all of our audience.

Matthew Peck: So, without much further ado, Kyle, thank you so much for coming on our show.

Kyle Casserino: Oh, thanks, Matt, for having me. Really looking forward to it.

Matthew Peck: Yeah. And I know I talked to you offline, but first, I love always starting with backgrounds, and kind of like how you got into charitable… Do you call it charitable giving, charitable planning? I guess I might stumble a little bit there, but just how did you get into the industry in the first place? And what changes have you seen in your time in charitable giving?

Kyle Casserino: Well, yeah, I would say it was the blend of both of my worlds at the time. So, growing up and even to this day, I did a lot of work with my church and went on various missions across the country, and that was always a huge part, philanthropy, in my day-to-day. And my family’s legacy is just the idea of, “Hey, we want to give back. We want to do it in the right way.” And then in college, I was a finance major, and it’s like you start to do the job search and you find, “Well, what’s out there?” And you do the classic financial advisory practices, but then it’s brought to my attention this group at Fidelity, it was Fidelity Charitable, and, basically, when I started, it was kind of like a startup at Fidelity.

We had 70 employees, 50,000 donors. It took us about 22 years to get there. So, it was a really small operation within the bigger Fidelity ecosystem. And fast forward to today, and we’ve just grown tremendously. We’re now at almost 800 employees. We worked almost half a million individual donors that use our program, and we’re seeing about $80 billion. So, it’s been crazy. And you said about the change. It’s like if my boss asked, obviously, I was responsible for most of it.

Matthew Peck: Well, yeah, right. There you go. Yeah, mark that down. But like, so yeah. So, let’s sort of start there, right? I mean, I know this donor-advised funds, and we’ll be talking a little bit about donor-advised a lot, actually, I’d say donor-advised funds, but that really would’ve, I mean, when did that… Was it like a bill that was passed and that created donor-advised funds or was it more, “No, let’s create like a business entity”? How did donor-advised funds begin?

Kyle Casserino: Yeah, it’s funny because they haven’t really become all that well-known until the last maybe five or ten years, but donor advice has been around for over a hundred years now.

Matthew Peck: Oh, get out. Okay.

Kyle Casserino: Yeah. So, small community foundations used to do these back in the day, and then Fidelity got into the game in the early 90s when, at the time, Fidelity’s Chairman and CEO, Ned Johnson, says, “Hey, listen, we really want to democratize giving.” It’s almost like the mutual fund aspect for charitable giving, where it was like, “Hey, you don’t really need to have a million dollars to buy this basket of investments in a portfolio. You can do it with a small dollar amount of mutual fund and still get the advantage of all that upside and the ability to diversify.” The same thing applies with charitable giving.

The idea then was, “Hey, listen, like you needed a half a million or a million dollars even at the community foundation level or if you’re going to do a private foundation to make it make sense.” So, the idea was let’s make this so that everybody in America that gives a charity can take advantage of it. And that’s where we are today.

Matthew Peck: Okay. Well, yeah, and I should also take a step back because I mentioned or I launched right into donor-advised funds. But let’s back up a little bit because I certainly want to talk about the different styles of charity and kind of where to give and how to give and the tax implications and all that. But let’s just start high-level like what are the vehicles that you work with, that Fidelity works with? Like, what is a donor-advised fund? I mean, literally let’s start there or some of the other ones that we’ve mentioned offline. What are the vehicles? How do they work? And let’s really just take us through Charitable Giving 101, and then we’ll start to build on it. But please, if you don’t mind, walk the audience through just the basic vehicles, how they work, et cetera.

Kyle Casserino: Well, it’s important, I think, let’s take a step back too, before we even go into the vehicle, just to understand what giving in America is like.

Matthew Peck: Okay. I like it. We’re taking two steps back. This is great. Two steps back to get three steps forward.

Kyle Casserino: Exactly.

Matthew Peck: I like it.

Kyle Casserino: So, folks would be so surprised to hear that the Giving USA report, they put out a report every year, and it basically measures the volume of giving in America. The last report had $557 billion going to charity.

Matthew Peck: Wow.

Kyle Casserino: Okay. That’s like 3% of the US GDP, and that’s in one year, $557 billion. Okay. It’s a huge number. There’s over 2 million nonprofits in the US alone. Okay. So, you have to think about how many people those employ, how many folks are giving, and a lot of it you think is probably like, “Oh, it must be these huge companies or these massive foundations that represent those numbers.” Actually, 70% of that number is by individuals.

Matthew Peck: 70% of the number of giving?

Kyle Casserino: Correct.

Matthew Peck: Wow.

Kyle Casserino: Of that $557 billion, 70% of that is giving by individuals.

Matthew Peck: And not to bring up a tragedy as an example, but Kyle and the producer, Evan, and I were talking about how Kyle was living out in LA during the wildfires. And so, just as an example of that last year, but so you’re telling me when that little ticker says, “Text here for American Red Cross,” and whatever that may be, 70% of that half a trillion dollars is from people just seeing little tickers or whatever that may be, just individuals making gifts?

Kyle Casserino: That’s right. It’s grandma and grandpa that are at home that send $50 to any charity that puts anything in the mail to them all the way from your Silicon Valley entrepreneurs and tech executives, and C-suite levels that are giving eight and nine figures a year, and everything in between.

Matthew Peck: Wow, on the individual level. And let me say, I do like the little return address stickers. I still use them. I’m a charitable guy, as we’ll talk a little bit, but I get the little stickers.

Kyle Casserino: Right. It’s the gift that keeps on giving, right?

Matthew Peck: Yeah, right, right. Okay. So, here it is. So, 70% of this, literally, half a trillion or more than $500 billion are going towards charities. 2 million, I didn’t realize that either. So, there’s 2 million individual charities out there. So, really, it’s an industry. When I said industry, I was just trying to think of a good word, but it really is like it’s a business. Interesting. And obviously, of the business of doing good.

Kyle Casserino: But business of doing good that employs a lot of people.

Matthew Peck: Yeah.

Kyle Casserino: That’s involved in a lot of people, right? There are folks that are helping and being helped. So, it’s a great industry.

Matthew Peck: Yeah. And obviously, great. I mean, talk about a win-win. Okay. So, here comes Ned Johnson in the early 90s, even though these community funds have been sort of around, he said, “Okay. Let’s democratize the system.” If you don’t mind or if we’re ready for it, you tell me. I don’t want to push the pace too much. So, then what is a donor-advised fund?

Kyle Casserino: Okay. So, in the simplest sense, this is a charitable giving account, which basically helps people or companies separate the timing of their tax benefits with when they actually have to give the money to charity. So, the tax benefits happen on the way into the donor-advised fund. The assets inside grow tax-free outside of the donor’s estate. And then they use the funds to give to their favorite charities, just at their own pace and their own time.

Matthew Peck: Well, actually, yeah, so let’s do more sort of compare and contrast. So, let’s say I have, I’ll say $50,000, and I’m going to give to a charity. What are my options? So, Matt Peck podcast, SHP partner, financial advisor, all that stuff. I have $50,000 that I want to give to a charity. What are my options, and kind of compare and contrast what I think most of our audience would think, like, “Oh, yeah, you just write a check to the American Red Cross.” But there are options.

Kyle Casserino: There are options. And candidly, if that’s the only gift you’re making throughout the year, just give it to the charity directly. No problem. Because you get the same tax benefits in the donor-advised fund that you get when you fund a public charity. There’s no difference. We’re a 501(c)(3), all donor-advised funds are just like the Red Cross and the Salvation Army, and your religious house of worship. No difference. Where it comes into play, I would say, is more about giving the right asset, though, at the right time. So, a lot of people think, and charities have made this so easy, is to give cash. You can go online, you can use your debit card, ACH it, credit card to get the points, which is kind of cool, or you can even like some charities have a PayPal and Venmo, and ways that you can give to them all electronically, but it’s all cash.

This isn’t a hot take, but cash is the worst asset you can give to charity. Why? You either have to earn it as income and pay income tax on it, or you have to sell and appreciate asset and pay capital gains. So, that’s what it costs somebody to give cash to charity. Most people that we work with are giving appreciated assets, and whether that’s to a charity directly or through their donor-advised fund, it really doesn’t matter. But the IRS kind of incentivizes you to do it because think about it, you were going to give away 50,000, right? Let’s say you bought Apple for 20K that’s now worth 50, but you were going to write a $50,000 check to this charity. What you would do instead is you would give that Apple stock in kind to the organization. Why?

You’re going to get a $50,000 tax deduction, the current fair market value of the stock, and then you don’t have to pay the capital gains tax on the growth. So, it’s a great way for people to sort of reset their basis in a lot of investments because think about what you just did. You’re going to off this position that has huge growth in it, but you’re going to give away $50,000 a year to charity. Put that $50,000 right back in your trust or your investment account and just buy back the shares the day after you gift them. Because now you can still maintain that same $50,000 of exposure in Apple. So, you’re not going to miss out on the upside, but now you’re just getting rid of that really low basis asset. And when you do want to sell Apple in three or four years, now you pay capital gains tax on today’s value in that future value, not five years ago when you bought it in that future value.

Matthew Peck: Oh, interesting. Okay. And I certainly want to talk about that, about what to give, about the difference between cash and sort of appreciated stock. Because I’m also curious about whether or not there’s appreciated property and other thoughts there. And also, that even gets into IRAs and QCDs, qualified charitable distributions. But let me also reel back too, because I think one of the things that will always strike me about the donor-advised funds versus regular charities and different things like that, it’s something that you said that I really want our audiences to understand, is that the donor-advised fund is a charity just like any other charity, right?

So, whether it is a donor-advised fund at Fidelity, or whether it’s American Red Cross or the Alzheimer’s Association, or the Boys & Girls Club, they’re all individual charities. So, whenever you gift money, and we’ll talk about whether it’s cash or appreciated stock in a second, but all of them you get a write-off as it goes in. And the write-off is obviously different for people, meaning that like I know there’s like an AGI level and how much you can write off, and we’ll hopefully get to that because there’s so much to talk about here. But here’s a donor-advised fund, and so it’s like, okay, I can either give to a donor-advised fund or I can give directly to the American Red Cross, or Boys & Girls Club, or whatever your charity of choice.

But the big difference, and then, correct me if I’m wrong, Kyle, but the big difference is that you get the write-off once it goes into the DAF, but then every year you can decide where the fund distributes the assets, right? So, it’s like let’s say that 50,000 and I definitely, as I said, we will go back to whether to do appreciated stock or cash or whatever because I think that what you said is extremely important, especially when it comes to appreciation. But, okay, so it’s almost like rather than giving into the American Red Cross all at once, well, what happens if I want to give a little bit to the Red Cross one year and a little bit to Boys & Girls Club next year, so forth and so on?

You can just fund the DAF with that $50,000 and then either give it to the American Red Cross a little bit, or you can divvy it out a little bit. I mean, just explain that a little bit or just make sure I have all my stories straight in regards to how that works, and just the comparing and contrasting between just the charity directly versus a DAF.

Kyle Casserino: Right. So, what you described is totally right. We kind of talked about it before, but if you are a donor that gives to one charity every year and just a one-time gift, there’s not really a great reason to use a donor-advised fund. The donor-advised fund is set up for the administrative efficiencies, right? It’s the person that’s giving to multiple charities a year, or that’s giving monthly, and then at tax time, they come to their CPA with a booklet like this, and then they say, or when they’re doing all this administrative processes, they’re looking at like, “Did we pay with our credit card online? Did we write them a check? Did we have Matt send 20 shares of Apple to them? Did they send us a tax sheet in the mail? Did they email it to us?” And it’s this really administrative process.

And what ends up happening, I hear this from clients all the time, is that, “We gave $500 to our nephews, really for life. We couldn’t find the receipt,” whatever. You know, not a big deal. You’re leaving money on the table as a result. So, most people that use our donor-advised fund are using it for the administrative efficiencies, and even if they’re doing it, so it’s like, “Hey, I give out $50,000 a year to charity. I give to three or four different organizations,” the benefit for somebody like that is at tax time, they have one receipt to give to their CPA, even if they’ve distributed that $50,000 to a thousand different charities at $50 each.

Matthew Peck: Yeah, which is a great point. So, rather than saying like, “Okay, hey, I have $50,000 and I’m targeting the American Red Cross,” it’s more like DAFs are great for someone that says, “I have a $50,000 budget.” So, my budget or my annual giving is $50,000, right? And so, rather than, as you said, like cutting checks and doing all this to 10 different organizations, I can just do $50,000 into a DAF and then the donor-advised fund, I keep on saying DAF, but DAF is donor-advised fund, but I put $50,000 into the DAF and then the DAF can cut out 10 checks to those various charities. And I just have that one letter, that one write-off, that one 1099 or whatever it is, or whatever form you get from Fidelity.

Kyle Casserino: That’s right. And not that we would ever want to make your life easier, but that’s the great part for the advisor too. It’s like, okay, now you just have one charitable contribution to do, so just record-keeping-wise it’s so much easier, right? So, it’s not anymore of the game of where your clients are coming to you and saying, “Okay, here are the wire instructions,” or, “Here are the DTC instructions for this charity,” and you have to coordinate with the charity to, “Okay, we’re going to send 10 shares of Apple here. Did you get it? Can you send us the tax form back?” All of that process is eliminated when you use donor-advised funds.

Matthew Peck: Which is fantastic. And that’s really why I wanted to kind of spend some time there. So, really, for any of our listeners that if you do have that budget, if you do say, “Look, I give every year $25,000,” or even you mentioned missions. I mean, even if it’s a tithe. I don’t know if tithes play into it. Actually. I’ll get your opinion on that. But with the idea that, okay, if there’s this budget that you give every year, alright, you might want to consider just rolling it into a DAF and then just distributing the exact same way. It’s not like the end charities don’t suffer. They’ll get it, and then administratively it’s just that much easier.

Now, I also want to talk to another audience of people that you should consider DAF and then, Kyle, you can kind of again color this in a little bit, is that, okay, number one priority are people that have set budgets that say, “You know what, I’m going to give every year $25,000, whatever it is so administratively it helps.” Because you get that big write-off that one year, it’s also very helpful for people that may have a large capital gain, either through a sale of a business or a sale of a property. Right? So, in other words, if someone says like, “Oh my goodness, this year I won the lottery,” as a really more broad example but, “Oh my gosh, all this money is coming due this year. I’m going to have this massive tax bill.” That’s also something to consider when it comes to DAFs, correct?

Kyle Casserino: Totally. I mean, we talked about the administrative profile of the people that use these accounts, but that’s really the second is the one that’s going through the massive life event. So many people use donor-advised funds almost like a 401(k) these days, right? Because your tax benefits are so much better when your income is higher. So, what folks will do is they’ll say, “Listen, I’m nearing retirement. My last five, six high-income earning years, what I’ll do is I’ll basically prepay my giving for my entire retirement even maybe into the next generation during those high-income years into the DAF.” Right? So, what you can do is you can contribute whatever the number is, it’s 100% deductible.

And what those folks can do now is now you’re going to take off income from the 37% bracket rather than when you’re in the 22% bracket when you’re retired, just getting your 401(k) income. Way better to do it when you’re in a higher income tax bracket, right? The tax benefits are better. You’re taking that money off your income that you give. So, a lot of people will use this as an opportunity to say, “Hey, I sold my company this year. I exercised stock options. I’ve sold some real estate. This is a huge tax bill for me,” and we’ll talk about the right asset to do it with, but that’s a great way to offset income in a year while basically pre-paying your charitable giving for maybe 10 or 15 years all the while they’re getting that tax deduction right then and there.

Matthew Peck: Yes. And so, I’ll definitely talk about the whole idea of exactly how that works in regards to pre-planning, I’m sorry, prepaying, and then what do you mean prepaying over 10 years? And I know we’re going to go there, but I just want to confirm or really clarify for our clients. I mean, yes, if you are, and whether it’s a big life event, I love how you put that, so you sold your business and suddenly you’re about to get a $10 million sort of one year. Now, you’re spiking your income that particular year, or you just have a high-income earner. And you’re up there and you just say. Okay. Well, how do I sort of maximize my tax deductions now after, as I said, that sale of a business or a high-income earner?

You then fund the DAF with sort of like 10 to 15 years’ worth of future charitable distributions all in that one year, right? And it’s like okay, well, what do you mean I’m pre-funding it? Like, what do you mean when I’m pre-planning? I’m sending a DAF a million dollars. I’m getting a write-off. What do you mean I’m prepaying?

Kyle Casserino: Right. Because you’re going to use the DAF like a charitable wallet, right? So, maybe your charitable giving never changes at all, but you’re just using the DAF as the way to send the money out to the charities. So, you’re taking the tax deduction now when your income can justify a huge write-off, but you don’t actually have to give the money to your favorite charities until whenever you’re ready to do it. And keep in mind, the assets inside the account are growing tax-free. So, that 10 or 15-year plan could easily stretch to be 20, 25 years through investment growth.

Matthew Peck: Well, I’m glad you explained that because that’s really what I wanted to hammer that point home was the fact that when because I was explaining earlier about, okay, I could either give directly to the charities or I can make it a much more administratively easy and much easier to manage by just putting a DAF and then having the DAF cut the check. But the DAF doesn’t have to be emptied. Like, that can be in perpetuity.

Kyle Casserino: Totally.

Matthew Peck: So, it could be for 5 years, 10 years, 15, and you can choose different charities each year. And as you were saying, that money is invested, right? So, that’s really what I want to convey to the clients, I’m sorry, to our audience, and different things is the fact that when it goes into the DAF, it’s almost like your own private foundation.

Kyle Casserino: Very similar.

Matthew Peck: Okay. Because I remember one time I think it was actually a colleague of yours was saying like you can either, like, sometimes clients would come to us and I love it because they’re like, look, very, very high net worth, “I would love to start like a scholarship or a foundation or something along those lines.” And I’m like, “Okay. Well, I love the drive and I love the desire to do something like that.” But then when I looked into it, it’s like, “Okay, you can either start your own foundation and have to do all the administrative work yourself, or you do a DAF.” And the gentleman I was talking to at the time, he said like, “Okay. You can either start a bank and all the work that goes into that or just open up a bank account.” And that’s kind of how he described the differences between trying to start your own private foundation and just establishing a DAF, which can go to perpetuity.

Kyle Casserino: Right. And foundations are sometimes right for the right people. To your point, it is like running a charitable business. You have to work with an attorney, get a tax ID number, file articles of incorporation, that’s on the low end, $5,000 or $10,000. The foundation has an annual tax filing, just like you would as an individual. Those are the kind of things that are in play administratively that people have to be aware of. So, the barrier to entry of foundation is probably a little bit higher. You’re probably not going to start a foundation with those costs at $100,000. You probably need at least $1 million or $2 million to make this worth it.

A foundation makes sense for people that want to employ a staff, right? They want to hire family members or friends to do grant research. They want to travel the country and pay those expenses out of their foundation to go visit different charities, or even the world, for that matter. And they want to go to Africa and help with wildlife preservation and some of the safaris, like they can pay for that out of the foundation, because it’s related to the mission. All that kind of stuff doesn’t happen in donor-advised funds. The donor-advised fund is specifically a grant-making vehicle. So, you want to start a scholarship fund. Let’s just look at this in the context of doing this in a foundation or a donor-advised fund.

Matthew Peck: Okay.

Kyle Casserino: In a foundation, you can be the one that sponsors and creates a scholarship. So, it could be like the Jane Smith Foundation is who’s awarding the scholarship. If you do it through a donor-advised fund, you have to partner with a charity. So, you have to send it to the high school or the college, and then they’ll be the ones, I mean, that donor can have their name on the scholarship and all of that, but in the donor-advised fund context, there are some balances that get in play too.

Matthew Peck: And as you said, they need to partner with sort of established charity rather than establishing it personally. But that’s interesting about the fact that, okay, so private foundations might be an option for certain folks because you said like the idea of like employing whether they’re family members or whatever that may be, but certainly, I love the ease of work with the DAFs, the donor-advised funds, and the fact that you can do it in perpetuity, right? It’s something that lives beyond the initial gift, and then that gift obviously you have to make distributions from it, but that gift can continue. You can add to it each year and then change charities as, I mean, just the flexibility to change charities as you go.

Because there are different needs. I mean, obviously, I’ll talk about the wildfires before, but I mean, there’s always, sadly… Well, let me put it this way. One of the things that I’m curious, yeah, so a little bit off, not off topic, but more of a broader question. And this is one of the things I’ve always struggled with personally when it comes to the charitable world is like there are so many good causes out there.

Kyle Casserino: I know.

Matthew Peck: You know what I mean? And like that’s the reason why the donor-advised funds always appealed to me personally, and especially when I talk to clients about them, is just the fact that you can change the end charity on a regular basis. And so, it’s like if you can’t make that decision like me, right? Like Alzheimer’s Association is wonderful, and cancer research is, I mean, they’re all amazing charities. The DAF is always appealing to me because you can choose different charities each and every year. You’re not locked into one particular one. And it’s something that can live forever, live for the rest of your lifetime. Correct?

Kyle Casserino: Totally. Yeah. I mean, it can go generations, just like a foundation does. And I think it is important to talk about the differentiators to it, like what foundations do versus the donor-advised fund. So, one of the big differentiators is the 5% distribution requirement. That has to happen on a foundation. So, it means that a foundation has to distribute 5% of its net assets every year to one or more qualified charities. There is no distribution requirement on donor-advised funds.

Matthew Peck: Oh, I thought there was. I’m sorry. That’s interesting. I thought there was like a small amount or like $50 or something like that.

Kyle Casserino: Every two years, which is our internal policy.

Matthew Peck: Oh, interesting.

Kyle Casserino: That’s not donor-advised funds as a whole.

Matthew Peck: Oh, interesting. Okay.

Kyle Casserino: And it’s kind of interesting. So, this is like a trivia thing for a lot of folks is, guess how much foundations in America give out? Now, you know that they have to give out 5%. So, across all foundations in America, what do you think the average is?

Matthew Peck: Let’s see. $50,000?

Kyle Casserino: No, in terms of percentage. So, they have to kick out the 5%.

Matthew Peck: They have to kick out 5. Maybe what? 3?

Kyle Casserino: Okay. Well, they have to do the 5%, so it’s 5.7%.

Matthew Peck: Oh, I’m sorry. Oh, I’m sorry. Take it back. Okay. So, it’s what over and above the 5?

Kyle Casserino: Correct. So, it’s 5.7 is total.

Matthew Peck: Oh, I would’ve said like 8%.

Kyle Casserino: Right. So, it’s low. So, our donors every year give out between 19.5% and 21.5% of our net assets.

Matthew Peck: Oh, interesting. Yeah.

Kyle Casserino: Without any minimums, which always has been like the rumblings of like, what can be like the legislative updates with donor advisement? There should be a payout requirement, but we argue that if you put a floor on it, you’re going to see what’s happened to foundations. And you’re going to see probably a decrease on the account level of giving because now people know they have to meet that and may be like, “We’re not going to give this charity $100,000 this year because we know we have to do more next year.” So, it may pull people back from that. I mean, that’s one of the big differentiators. The other thing too is that a private foundation is such a misnomer because it is anything but private.

So, if you have access to a computer, you can put the last five years’ worth of tax returns of any foundation out there. That’s Bill and Melinda Gates, your favorite celebrity, your neighbor down the street. You can see the assets in there. You can see who they’re giving to, who they employ, how much they’re granting out, everything. And you don’t need to be an accountant to do it either. I mean, it’s so easy to decipher. So, it’s anything but private. So, anybody, like I said, anybody with access to a computer can see that information. So, donor-advised funds, we have a tax filing every year, but it’s an aggregate of all of our donors. So, we’ll never be able to see it. Somebody can go onto our site and pull up our 990 and say, “Oh, Fidelity Charitable gave $25 million to the Red Cross.” But they have no way of knowing donor-by-donor who did that.

Matthew Peck: Yeah. Well, that’s interesting. So, you could argue it is more private than a private foundation would be.

Kyle Casserino: Right. Well, we have a lot of donors. Actually, this is like a pretty interesting case, is that I was working with a family last year, who their daughter went to [indiscernible 27:54], but they were going to college and they were in a particular school in the college, and one of the professors knows that the family gives big money to the school every year. So, the professor comes up to that person, the child in the class, I mean separately, but says, “Hey, listen, we’d really love your family to direct some of these funds towards us or towards our particular initiative, what we’re working on.” So weird, right? So, now that family, what they do is they say, “Listen, we don’t want any charities, A, knowing who we’re giving to, because charities use the foundation tax returns as a solicitation tool. Like, if you’re giving to the Boys & Girls Club in town, why would the YMCA not contact you?

Matthew Peck: Yeah, right. Absolutely. Yeah. They’d be like, “Hey, wait a second. Hey, we’re serving similar ends.”

Kyle Casserino: Totally. So, what they do is they just say, “Okay. I’ll make a grant to my Fidelity Charitable donor-advised fund.” On the Foundation’s tax filing, it just shows us one grant to Fidelity Charitable. We’re a 501(c)(3). So, if you’re looking at their tax filing, you just see one grant to Fidelity Charitable then they do all their giving out of their DAF anonymously every year.

Matthew Peck: Oh, interesting. Yeah, so almost ends up being a combination of the two at that point, depending. Interesting. Alright. So, Kyle, before we get too far down the path, I want to go back to the cash versus the appreciated stock, because I want to make sure. Alright. So, now, audience, here we go. So, now we know we can either gift to charities directly, but it’s a little bit easier to manage via DAF. We could do a private foundation, which again works for certain folks and certainly has some benefits there in regards to making it a family affair, but a little bit more public than you may have expected. But what’s nice is, again, we’re still getting all these tax write-offs, and I’ll spend a little bit of time on taxes afterwards, but we know kind of our options, right? Private foundation, DAF, maybe directly to the charities, things along those lines.

But then let’s talk about what to give. Now, I was giving a way too simple of an example of just saying, “Okay. I’ve got $50,000 in cash, and where do I give it?” But really, it ends up being more of like, okay, yes, I have cash, but I have appreciated stock. I mean, what can you give? And then what’s the best item to gift?

Kyle Casserino: Yeah. So, when you look at your balance sheet, the asset that you’d love to give to charity is one that has the highest percentage growth in it because that asset at the time of a sale is the most what you’re going to pay in capital gains taxes on, right? So, long-term held for one year plus. So, it has to be at least held for that period of time. But the ones that have the highest percentage growth in the portfolio are the best to give because those are the ones that if you sell them, you’re going to get crushed on taxes on it. We have a lot of folks that come to us. They have these concentrated positions. It’s like, “I’ve held Disney since the 80s. I bought Tesla early on,” or NVIDIA is most common. It’s like, “Okay, now all of a sudden I’m up 1,000%. Now, my portfolio is so overweight, or now I’m like way too exposed in this one asset.” So, those are what people usually fund their charitable giving with.

Matthew Peck: Okay. So, just to pause there, so now, with other, well, obviously if you are a business owner and that sold their business and suddenly has this big windfall of $10 million that’s in cash paid out to you, et cetera, that’s a different story and we’ll talk about that. But for most folks who did not have this big windfall or big life event, they would then look at their after tax accounts, look at their brokerage accounts and say, “Okay, if I do have that budget of $25,000 or $50,000 a year in charitable gifting, now I’m looking at the appreciated stocks.”

Kyle Casserino: Totally. Because I think the other thing too is that it’s a lifestyle thing too, right? Because when you’re giving cash to charity, that’s coming out of your checking or your savings account. So, it’s like that’s part of a donor’s budget. So, if they’re giving the right asset at the right time, they may not even have to factor it into their lifestyle. They’re not going to dip in their own pocket to give to charity. They either, A, already have the money set aside in the donor-advised fund or can use some of these pre-tax assets to do it with.

Matthew Peck: Well, and that’s what I wanted to make sure that we were clear on too is the fact that, okay, so now let’s say I look at my after-tax accounts rather than raiding my cash because I loved how you said, like, something that I’m going to build to now was that, okay, so I want to give $25,000. Now, I’m looking at NVIDIA. Okay. I can gift the NVIDIA and now I have gotten the tax write-off on the current value, like the appreciated value, and I didn’t have to pay any of those capital gains.

Kyle Casserino: Correct.

Matthew Peck: Let’s say I bought it for a dollar and now it’s worth $25,000. I mean, that whole thing is appreciated. So, I saved. I did not pay any capital gains and I got a full value on the donation.

Kyle Casserino: Totally. And then in the donor-advised fund, it’s sold tax-free. So, now you have $25,000 in your example to give to your favorite charities, either right then and there or over time.

Matthew Peck: Okay. And then, but also, let’s just say what you said earlier is that, let’s just say you really, really like NVIDIA stock. You can then, rather than use the stock to fund the charity, but then if you have the cash that you were thinking about it, you can then take that cash and buy back that stock.

Kyle Casserino: Right. Buy back the stock. You’re going to give the cash anyway. You might as well give the right asset the right time. Don’t give the cash and use the cash. Put it right back in your portfolio. There’s no wash sale rules. You’re not selling NVIDIA. You’re gifting it. Right. So, you can just reset your basis. Now, you still have the $25,000 of exposure in NVIDIA, but you’ve effectively stepped up your basis, right? So, now when you do want to sell it next year, and you’re like, “Hmm, market’s not so good anymore. It’s not what I thought,” now, you’re going to pay capital gains on today’s value in that future value, not when you bought it five years ago.

Matthew Peck: Interesting. That’s fantastic. Yeah. That’s the thing. But these are all the things, these are all the different tools and strategies that just is so important to know no matter where you are on, as I said, on the wealth spectrum, but also certainly on the higher net worth, the higher income, the higher tax bracket that you’re in. The higher you go up tax brackets, the more and more this becomes important for all of our clients to know, as well as all of our audience to know. Alright. So, we really unpack like the DAFs of the world and different things along those lines. Something that you talked about before, and it was similar to what I was mentioning earlier about the cause. How much does Fidelity… And yourself, Kyle, like help out people decide who to give to.

Because sometimes, I mean, as I said, I struggle with it too, but then people say, “Well, there’s ways of measuring charities based on like their dollar efficiency,” or maybe there’s a better term for it. But I mean, is that something? Or, I guess, what guidance do you give people in regards to where to give?

Kyle Casserino: So, we’re facing donors at a really interesting intersection, right? Because a lot of times people are coming to us when they’ve had those huge life events, and they’re like, “I’ve sold my company, but historically over the years, I’ve only really given to my religious house of worship or my alma mater.” And I’ve kind of kept at that, because we haven’t really been giving much, but then we just sold our company for $50 million. Our account said we should give away five before we sold it, and now we have this $5 million bucket to give away, but we haven’t really figured out. We don’t know what we want to do. So, there are a lot, like I’ll kind of go from like the most simple to more complex.

So, in the most simple sense, there are platforms out there like Charity Navigator and GuideStar. They’re great services. You get it for free if you’re a Fidelity Charitable donor. And what it will do is provide a rating system on a charity. Okay. To your point, expense ratios. If I give a dollar to this charity, how much of it is being used for the overhead versus the actual purpose or the programs of the charity, things like that? They’ll show you their analytics. They’ll show you things like their mission, the programs they work on. So, it’s really comprehensive. That’s the most simple sense. It allows people to do that themselves. Or you’ll see like Center for Disaster Philanthropy is another great group. They’ll do pre-vetted lists of organizations.

So, we talk about the California wildfires, Ukraine, the Hurricane Helene in the Southeast. These are all kinds of things where it’s like, unfortunately, these bad things happen, and then you go online and it’s like, okay, the first 10 charities that you google are either fraud or they’re horrible expense ratios. Like, they’re not really using the funds right. So, there’s organizations out there that will put together lists of charities that meet certain criteria.

Matthew Peck: Yeah, and just real quick, that’s something that I know it happens and I still can’t believe it happens. That’s all. I mean, I know there are a lot of bad actors and scammers and con artists out there, but that’s one of the things I can’t fathom. I mean, there are many things on there, but that’s one of them like, “Wait a second.” Oh, before I forget, because I do want to get back to how to rank them but you mentioned about your house of worship and tithes. And I brought up tithes earlier because obviously we have a lot of faith-based clients. So, does that work? I thought churches weren’t 501(c)(3)s. Or they are charitable donations? When it comes to religious orders, what impact does that have?

Kyle Casserino: So, it’s interesting because to your point, they’re not really 501(c)(3)s, but they’re able to be given to, from a donor-advised fund or out of pocket, and still get tax benefits for it. Here’s the qualifications that they need in order to get out of the donor-advised fund. They need to have a physical location, and they need to hold at least one service a week. But we are giving to tens of thousands of religious houses of worship. As a matter of fact, the charity that we give the most money to every year, no free marketing, but is a religious house of worship.

Matthew Peck: Okay. I mean, do people, when they talk about tithes and the 10%, I mean, is that something that sort of works into donor-advised funds? Are people still, “No, no, no,” they’ll kind of do that on a personal level with their church?

Kyle Casserino: No. They do it out of their donor-advised fund. Most people will, because keep in mind, I mean, that donor-advised fund’s already set aside for charitable giving. So, if you have one, you might as well spend it. You can always add to the account. You can’t take money out of it personally. So, yeah, to your point, always people are doing that, especially when you’re getting closer to retirement and you’re like, “Okay, maybe I have to give 10% of my income this year to my church, but I’m going to put in like two or three years’ worth of my tithing so I can get the tax deduction now but then basically prepay it.”

Matthew Peck: Well, and that’s the other thing that kind of popped in my mind is the fact that so not only is it in regards to, because we talked about income tax and lowering your income tax with these charitable donations. We talked about, obviously, if you have a big life event, but these funds are also out of your state. So, when it comes to estate tax, again, high net worth clients that are over and above, whether it’s the Massachusetts threshold, which is 4 million with good trust planning, obviously less without it. I know the federal exemption’s higher. But just, Kyle, a little bit, tell our audience about the estate planning and how it also factors into that.

Kyle Casserino: Yeah. To your point, I mean, you’re getting these assets outside of your estate when you give them to a charity, and candidly, most people have a charity or a cause area they’d rather see the money go to than Uncle Sam, right? So, if you’re over the exemption, it’s like, okay, pick your battle. Especially if, I mean, I was looking at like the IRA account, which is kind of a tough asset now to lead to the next generation, especially if the kids are successful. If they take the money out in 10 years, take the income hit. A great asset to leave to charity, though.

So, if you’re philanthropically minded and you want to get those assets out of your estate, maybe you do the qualified charitable distribution years leading up to it, but great to name a charitable beneficiary, one or more, or their donor-advised fund as the beneficiary. That way you get them out of your estate when you pass away.

Matthew Peck: Okay. So, I knew that you could name charities as beneficiaries, but you could name your own, I’ll call it the Peck family donor-advised fund. That could be the beneficiary of my IRA or 401(k).

Kyle Casserino: Yeah. And so many people do it now because they do their estate planning decades before they die, right? So, it’s like you want to lock yourself with your trust and estate attorney into one or two charities when you’re in your fifties, but maybe you’ve retired and now you joined a board, or now you’re more religious, and then you have to go back to your attorney and say, “Listen, we want to amend the appendix. Let’s put this charity in. Let’s take this one out. Let’s change the percentage of this one.” That’s expensive to go do that.

So, most people, what they’ll do is they’ll say, “Okay, I’m just going to open a donor advisement. I don’t actually have to even have to fund it during my lifetime, but what I’ll do is I’ll name that as the sole charitable beneficiary of my estate.” The donor-advised fund is a 501(c)(3), and then you create the succession plan inside the donor-advised fund that you can update online as much as you want. It’s just like an IRA account.

Matthew Peck: Yeah. Oh, man. Oh, my goodness. All right. We are running short on time, and it’s only because, Kyle, like literally, we could spend all day here, which is great because he just mentioned QCDs and I’m almost like, “Oh my gosh. Now, we have to talk about IRAs and qualified charitable distributions and that world.” And even like we were talking a little bit offline. So, what I’m going to do is I’m going to tease our next episode. I’m not sure when it’s going to be, but I would love for you to come back because I mean we didn’t talk about qualified charitable distributions, which is IRAs and how do you manage that, and not just from beneficiary form like we just talked about, but also in regards to required minimum distributions and how they interact with those.

And also, some of the other, I wouldn’t call the original tools, but tools that people might be aware of, which are CRATs, Charitable Remainder Annuity Trusts. You mentioned there was a charitable what’s a…?

Kyle Casserino: Lead trust.

Matthew Peck: So, CLT?

Kyle Casserino: Right.

Matthew Peck: Charitable Lead Trusts. There’s a CRUT, Charitable Remainder Unit Trust. And so, there’s all these other vehicles and options, and they all sort of interact with taxes. I mean, because we were talking about really just like the nuts and bolts with how DAFs work and getting the appreciation off. But I mean, there’s a whole other world of… and other vehicles, because we did have a chance to talk about the private foundations. But as I said, I’d love to drill down into the IRA world and options there as well as more of the legal world. And so, again, comparing and contrasting there.

Understanding more about the DAFs themselves, because I had another thought. Actually, yeah, this one’s a quick one. So, alright, I set up a DAF, but my wife and I passed away. Who runs? What happens to the DAF after me and my wife pass away?

Kyle Casserino: So, you tell us during your lifetime what happens. So, none of these are mutually exclusive, but there’s really three routes you can go. Naming individuals. A lot of people do the next generation, just like a foundation, kids take over the account, can give to their favorite charities. So, it’s like a family legacy where it goes generation to generation. The kids can pass it to their next generation, and all outside of the estate, keep in mind. So, this isn’t part of your trust or anything like that. It’s just the successor. They open their own account or continue the existing one. That’s option one. Very vanilla.

Matthew Peck: And just to pause there. Let’s say the child has a DAF. Can DAFs be merged?

Kyle Casserino: Yeah, happens a lot.

Matthew Peck: Okay. All right. Keep on going. Okay.

Kyle Casserino: Option two is non-profit. So, this is great for the person that’s got 10 or 15 charities listed as the beneficiary of their IRA. All those charities, I don’t know how it is to other custodians, but at Fidelity, all those charities have to open accounts. IRA BDA accounts at Fidelity. All 15 of those organizations have to open accounts before a single penny leaves that original IRA account, because they need to make all the successor distributions. So, charities that are the Red Cross, maybe they don’t have a problem filling out the form, stuff like that. But what about that religious house of worship that has a 10-hour-a-week part-time accounting staff who is like, “We don’t really know what to do here. And maybe we’re filling this out right. Maybe it’s wrong.” It’s a lot of back and forth.

So, most people will name charities outright and those are great for people that don’t have kids either, where they’re just like, “Hey, we want all these assets to go to charities, but rather than locking ourselves into one or two, we’ll just name the donor-advised fund and then all the charities can be paid out. It also works too, I think, like the combination of those two works really well for the people that are like we really want our kids to give to charity, but we really can’t force that next generation to give to the same charities their parents did. So, some people will say, “I really want these charities, ones that I’ve given to. Regardless of what our kids do, I want them to get something out of this.” So, they make an allocation.

The third route, which I think is really helpful for people, and this is mostly for the person that’s got the $5 million IRA coming into the account, where they say, “You know what, listen, I don’t really want to give a lump sum to one charity right away. I’d rather give them almost like an income stream for years and years after I die.” So, that person who maybe passed away this year, their names are still on the check in 2050 when those funds are still getting paid out.

Matthew Peck: Oh, cool.

Kyle Casserino: Cool for things like scholarships.

Matthew Peck: Yeah.

Kyle Casserino: Right? Like, why give the charity $5 million right now to fund a scholarship for the next however many years when you can give them $50,000 a year, where they can line item that every year?

Matthew Peck: Right. Ah, fantastic. That’s what I’m saying, Kyle. Okay. So, that’s why we are going to have you back, obviously, if you don’t mind putting up with me and sometimes like, “Wait, 5% on your endowment or is it 8%? Shoot. I got that one wrong.” So, as long as you don’t mind putting up with us, because like I would love to have you come back and literally kind of build on this, right? Because we covered basics, but there’s so much more. There are so many different options, how you work like the tax planning, legacy planning, just the overall impact you want to have as all of us humans. I mean, I love talking to clients about that because especially when they do get to sort of comfort, financial independence, if you will.

Now, it’s no longer about, “Oh, hey, what stock do you want to invest in? Hey, how much do you want to spend? And how are we going to close the income gap?” It’s like, what does significance mean to you?

Kyle Casserino: Right.

Matthew Peck: Right? And what does success mean to you, and what does impact mean to you? And that’s why it naturally brings in conversations like charitable giving, obviously, tax planning, legacy planning, things along those lines. And so, today’s podcast is right up the alley for what we do every single day. And that’s why we’re hoping to have you come back. I know that there’s plans to have you speak in person, which would be great. And certainly, we’re very, very grateful for the partnership with Fidelity. SHP has its own donor-advised fund. Matthew Peck and the Peck family has our own one as well. And again, just because it so aligns with not only our purpose and our own mission and passion here, but for all the charities and all the ends people that benefit from the type of giving. So, it’s just as you were saying, either off or online, it’s just a win-win in so many different ways.

Kyle Casserino: Totally. Yeah. Thanks for having me.

Matthew Peck: Yeah. I really, really appreciate it, Kyle. So, stay tuned. You’ll hear more from Kyle Casserino as we go. But again, thank you, Fidelity. Thank you for Kyle Casserino, VP of Charitable Planning. And stay tuned. You’ll be hearing us again.

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