More tech millionaires are using donor-advised funds for tax savings and giving

The surge in IPOs and valuations for private tech companies is creating a secondary boom in donations of shares to donor-advised funds, or DAFs, according to a new study.

Three quarters of the gifts to DAFgiving360 over the past 12 months were noncash assets, according to the donor-advised fund, which is affiliated with Charles Schwab. Noncash assets include everything from shares in public and private companies to real estate, art and collectibles, crypto and other holdings.

Julie Sunwoo, president of DAFgiving360, said gifts of private company stock have been especially strong, as artificial intelligence giants like Anthropic and OpenAI skyrocket in value and more companies stay private for longer.

"This year we had more inquiries about private-business interests and pre-IPO shares than ever before in any other year," Sunwoo said.

DAFs have special appeal for tech workers and holders of private shares. The funds allow donors to make a charitable gift, take an immediate tax deduction, and decide later where and when to give the shares to a specific charity. Donors who own shares of a private or public company that have gained value can gift the shares to the DAF without paying a capital gains tax on their sale.

DAFs are also attractive to tech workers who tend to be younger, since they can make the donations now and wait until their later years to decide on the individual grant recipients.

Large DAFs, like those affiliated with Schwab, Fidelity and Vanguard, also have expertise valuing private shares and other assets. They have large market-making operations and relationships with private companies that make it easier for them to sell the private shares.

Sunwoo said generally, DAFs seek to sell noncash assets given to the fund within six months.

The Inside Wealth newsletter by Robert Frank is your weekly guide to high-net-worth investors and the industries that serve them.

"We have the infrastructure and the expertise to help people liquidate those assets in time and redeploy them to charity," Sunwoo said. "It is often an individual plan with the [private] company that we are working with to figure out the best time frame and the best solution."

The SpaceX initial public offering earlier this year — and potential IPOs of Anthropic and OpenAI — could unlock even more value. Many employees of tech firms have large gains in their employee stock. Some private companies restrict or ban the donation of their private shares to charities or trusts. With public stock, many employees can now donate the stock to a DAF without paying the capital gains tax.

The deduction on the gift can also be used to offset capital gains taxes owed on shares they may sell.

"We help take in appreciated assets, help people liquidate them, and help people get that money then out to charities," Sunwoo said. "The IPO activity that we've seen is creating wealth moments for people often in their peak earning years, so they're looking for ways to make an impact with the money that they suddenly come upon."

Get this delivered to your inbox, and more info about our products and services.

Data is a real-time snapshot *Data is delayed at least 15 minutes. Global Business and Financial News, Stock Quotes, and Market Data and Analysis.

Indexed and credited by AIPROPX. Originating outlet: CNBC. Open at source →