Senior Partners - 2
Elizabeth Williams DTN Special Correspondent
Fri Apr 4, 2014 10:44 AM CDT
(Page 1 of 3)

INDIANOLA, Iowa (DTN) -- Sid Burkey wants to pass on to his children what his parents passed on to him -- not simply assets, but a family faith legacy in the Mennonite tradition. "The more mature you get, you look more at what really matters," said the 63-year-old livestock and crop farmer who farms with his brother, nephew and son-in-law in Seward County, Neb.

The Burkey family of Seward County, Neb., formed a "donor-advised fund" to maximize their flexibility in tax-planning and increase the impact of their charitable donations. Pictured from left to right are Peg Burkey and her husband, Sid; Sid's brother, Tim; and Tim's son, Brant Burkey. (DTN photo by Anthony Greder)

"With the ag prosperity surge in recent years, we've seen a significant growth in assets in a lot of farm operations. Now farm owners are asking, 'How do I manage my taxes; what do I do with this net worth?' There's a lot more meaning in life than 'stuff,'" said Burkey. "We've had some interesting inter-generational discussions."

As they looked for ways to share their good fortune, the Burkeys formed a "donor-advised fund" to maximize their flexibility in tax-planning and increase the impact of their charitable donations. They focus on programs that alleviate poverty and aim for a $7-to-$10 return for each dollar gifted.

A donor-advised fund is relatively easy to set-up, provides uncomplicated administration and offers a lot of flexibility for tax planning and gifting opportunities, said Walt Mozdzer, a certified financial planner with Syverson Strege and Company in West Des Moines, Iowa.

Flexibility is an important tax strategy for most farmers. Mozdzer said suggesting a donor-advised fund often starts with a tax situation. If a client typically gives to charity every year, Mozdzer recommends a donor-advised fund for its flexibility, especially for those with fluctuating annual income.

That fits the feast-and-famine that producers experience in farm incomes. "Sometimes it's close to the 11th hour -- near the end of December before we know how much we need to modify our income," said Burkey. "With a donor-advised fund, we can donate a load of grain or a load of hogs in December and then decide later which charity we want to give to. Alternatively, in some years we are able to make a substantial, last-minute cash gift, but we haven't defined exactly how we want to split our donation by the end of the year. We can drop our donation into our donor- advised fund and decide the gifting details later."

Mozdzer gave an example. "Let's say you generally donate $10,000 a year. But in a good income year, you have $50,000 to donate," he said. "You can put that $50,000 in a donor-advised fund and then use that to gift $10,000 per year for the next five years. You get a larger tax benefit in the year you need it and you still have money to donate if the next year is a leaner income year."

If you gift a commodity to a donor-advised fund, you do not take a "charitable deduction" but rather you simply reduce your gross income on your Schedule F by the amount donated. In addition to income tax savings, this also reduces self-employment taxes.

You can also gift appreciated assets, such as land, to avoid capital gains taxes. And gifting depreciated assets avoids depreciation recapture, which is taxed at ordinary income rates.


In most cases, you don't need a large amount of money to start a donor-advised fund. Generally $5,000 to $10,000 can get you started, depending on the program. You can hook up with a local community foundation or a national foundation to administer your fund. "I describe it as 'renting space' or borrowing their tax-exempt status for your charitable fund," explained Mozdzer.

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