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Writing a check to charity may actually be one of the least tax-efficient ways to give.
In this episode, Dave Wolcott sits down with Phoenix Hafen of UI Charitable to explore how strategic philanthropy can help entrepreneurs and investors support causes they care about while making their overall wealth strategy more tax-efficient. They break down donor-advised funds, appreciated asset donations, liquidity-event planning, and how philanthropy can become a powerful tool for building a multigenerational legacy.
In This Episode
- Why donating appreciated assets can be more tax-efficient than giving cash
- How donor-advised funds can separate the timing of your tax deduction from when charities ultimately receive the funds
- Why philanthropic planning before selling a business, real estate, or another appreciated asset can be especially important
Phoenix Hafen is part of UI Charitable, a philanthropic back office focused on helping high-net-worth individuals and families structure their charitable giving. Their work centers on two objectives: helping families achieve meaningful philanthropic outcomes while structuring their giving as tax-efficiently as possible.
This episode covers tax strategy, wealth strategy, donor-advised funds, charitable giving, strategic philanthropy, capital gains tax planning, liquidity events, generational wealth, legacy planning, appreciated assets, business owners, entrepreneurs, accredited investors, and tax-efficient wealth building.
If you have a liquidity event coming up, don’t wait until after you sell the business, pay all the taxes, and then start thinking about your charitable giving. You really want to be doing it before that sale happens, so you can save on capital gains and get a larger deduction.
How’s it going, everyone? Welcome back to Wealth Strategy Secrets of the Ultra Wealthy. I’m your host, Dave Wolcott. What if you could create a meaningful philanthropic legacy and make your overall wealth strategy more tax-efficient at the same time? Today I’m joined by Phoenix Hafen of UI Charitable to unpack strategic philanthropy, and why simply writing checks to charities may be one of the least efficient ways to give. We break down donor-advised funds, donating appreciated assets like businesses, real estate, securities, and crypto, and why planning before a major liquidity event can create significant tax advantages. We also explore how philanthropy can become a powerful tool for passing your values, not just your wealth, to the next generation. If charitable giving is already part of your life, or if you have a significant liquidity event on the horizon, this episode could change how you approach it. Phoenix, welcome to the show.
Thanks for having me, Dave.
It’s great to have you on the show today. I think we’re going to talk about a topic a lot of people haven’t fully understood, given some of the complexity around it: how it applies to shifting tax laws, and what the great strategies are around donor-advised funds and tax-efficient strategic philanthropy in general. Excited to jump into that today. If we want to frame this for the audience, help us understand it from a 101 perspective. What does the overall landscape look like for strategic philanthropy? What options do people have, and how should they think about approaching it?
That’s a great question. A little background on us at UI Charitable: we view ourselves as a philanthropic back office. Everything we do focuses on helping high-net-worth individuals and families with their philanthropy and charitable planning. In doing that, we’re really focused on two main goals: are our clients achieving the charitable outcomes they care about, and are they structuring their giving in the most tax-efficient way possible? Everything we do is framed around those two goals: here’s the change you want to cause in the world, the problems you want to solve, and then how do you do that in the most tax-efficient way possible.
Some people hear that and scratch their heads, thinking philanthropy is simple, that you just give cash to charity. We say no, you should never do that. Not because you shouldn’t be generous, and not because you shouldn’t support these charities and the causes they’re solving, but because cash is the least tax-efficient asset to donate. What you should really be giving is your appreciated assets, or any assets with a capital gains liability, because that gives you a double benefit: you get a charitable tax deduction for the full fair market value of what you’re giving away, and you avoid capital gains tax on the portion you donate.
Are there particular assets you’d recommend as typical choices for people? And are there some people shouldn’t be donating?
We always start with that main point: don’t donate cash, donate anything appreciated. From there, it’s a matter of looking at your most appreciated assets, or the assets you most want to get off your personal balance sheet. On the most-appreciated side, we have a lot of donors who’ve been growing a business for 10 or 15 years and have a sale coming up. They’ll donate 2% or 5% of that business into a donor-advised fund or their private foundation before the business sells, so they avoid capital gains on the portion they’re donating. For them, that’s the best asset to donate to achieve the charitable outcomes they care about, and it’s something we see often. Public securities, private business interests, and real estate are common too. We’ve had some interesting ones as well: a pallet of silver bars, greenhouses, a few unusual examples like that.
How about crypto, for instance?
Yes. In the last Bitcoin bull run, in late 2024, we had a lot of donors donating crypto, Bitcoin specifically.
Tell us about donor-advised funds for people who aren’t familiar with them. What are they, when should they be used, and how do they work?
Sure. Like I mentioned, you really want to optimize for two goals: the charitable outcomes you care about, and being as tax-efficient as possible on the timing side. Giving directly to charity does both of those at the same time. But there are vehicles that let you separate the timing of those two things and be more thoughtful about it. One, which most people are familiar with, is a private foundation. The other option is a donor-advised fund.
The difference is that a private foundation is its own standalone entity. You hire a lawyer to set one up, you staff it, and it has its own annual taxes and reporting. That’s a good option if you have a lot of resources you want to give to charity. A more efficient way to set up a charitable vehicle is a donor-advised fund, which is simply a charitable giving account. You set it up, put assets into it, cash, public securities, real estate, privately held business interests, really any asset, and take an immediate charitable tax deduction. While those assets are in the fund, you can invest and grow your charitable dollars tax-free, and over time recommend grants to nonprofits out of the fund. That lets you optimize both sides: you get the tax deduction when you need it, on whichever asset is most efficient for you to donate, and then you’re free to choose your own timing for when you want to grow the dollars or give them out to nonprofits, at whatever pace suits your plans.
Who do you think is the ideal candidate for a donor-advised fund?
Of course you need to have a charitable interest. For individuals looking for the most tax-efficient way to exit their business but who have no charitable interest, a donor-advised fund isn’t going to be a good fit. So it starts with establishing: yes, I have a charitable interest. Maybe there’s a problem you want to help solve, or maybe you pay tithing to your church every year, whatever it is. Once you know you have a charitable interest and you’re going to be giving money away, the next question is how to get that money out to charities while also saving as much as possible on taxes. Anyone in that position is a good fit for a donor-advised fund. I think it starts to make sense around the $20,000 to $30,000 mark in annual giving; that’s about where you’d want to start looking at a strategy like this.
Got it. How do you think investors should think about timing deductions and distributions?
If you have a liquidity event coming up, if you’re selling your business or some real estate, that’s a great time to look at it. That’s something we help a lot of clients with: they have a business sale coming up in the next three to six months, and they’re looking at donating a piece of that business before it sells. That’s a great time. Really, any time you have a high-income event, when you’ve just sold a business or some real estate and you’re looking at how to offset your income in that high-income year, is worth considering.
Got it. What should happen before selling an appreciated asset, if philanthropy is part of the plan?
You really want to look at how much charitable giving you plan to do over the next five years or so, you could extend that out to ten, but you want to front-load that giving into the year you have a high-income year, because that’s when you can offset the most income with a charitable deduction. So the forecasting you want to do is: what’s my giving plan for the next five to ten years, and can I front-load that into year one to offset as much income as possible?
How are you thinking about digital assets these days? Obviously it’s new, and I think a lot of people are still figuring out the complexities. You mentioned you can use crypto for donations, which is great; we’ve seen a lot of crypto bulls do pretty well in the past. But how have digital assets changed charitable giving overall? Are you seeing that more often?
I’d say we see it less often lately, since it’s been a bit of a bear market for crypto assets. But in the run-up before that, we saw a lot of Bitcoin donations, and it was important to many of those donors that we didn’t sell the Bitcoin once they put it into a donor-advised fund. They wanted to take the tax benefit right away, but continue holding the Bitcoin within the fund so it could keep growing, and then liquidate it piece by piece as they wanted to do their giving. That’s one thing we see: among Bitcoin holders, they don’t want to sell until they really need to, until it’s time to give the asset away.
We also see donors who believe their altcoins or other digital assets are hitting a peak and are highly appreciated, with a very low cost basis. That’s a good asset to donate, because if you sold it, you’d have a large capital gains liability. So if you’re going to be doing charitable giving anyway, it makes sense to give away your most highly appreciated assets.
From a strategic perspective, we talk a lot about holistic wealth and building an end-to-end wealth system. Out of that comes our focus on creating investment policy statements for clients, an end-to-end financial constitution covering everything from their legacy plan, their risk tolerance, and their ideal portfolio allocation mix, to what their passive income looks like and what it’s projected to be. Philanthropic ventures would be part of that as well. I think it’s still an area where people are genuinely inclined to be involved in some kind of philanthropy, maybe through their church or their community, but how would you say people should think, strategically, about philanthropy fitting into their overall legacy plan and wealth strategy?
Philanthropy can become a powerful tool for passing your values, not just your wealth, to the next generation.
That’s a great question. As a philanthropic back office, we focus on figuring out what our clients want to do and helping them find the best route forward. Donor-advised funds are probably 75% of what we do, but we offer other products depending on what the client needs. For example, we offer fiscal sponsorship, for clients looking to start their own 501(c)(3) who might not know exactly where to begin and want help getting it up and running quickly.
That’s one example of how we help clients think through what they actually want to accomplish, what outcomes they’re going for, and then, looking across their balance sheet, what the best assets are to accomplish that, and how to approach the timing: when to set things aside, and when to take the charitable deduction versus actually deploying the dollars. Across our products, we’ve tried to build the most flexible offerings to accommodate that. With our donor-advised funds, for example, we have a very flexible investment policy. Some donors say, “I’m going to set charitable capital aside in my donor-advised fund, but I want it held 100% in Bitcoin, because that’s what’s important to me and where my values align.” We accommodate that. Other donors say, “My financial advisor is going to be assigned to the account, and I want him to control the investment strategy for my fund.” We allow for that too. Those are some of the ways we’ve tried to make it as flexible and accessible as possible, so clients can do it the way they want.
If you were about to work with a brand-new client who was thinking about setting up a donor-advised fund, what does that process look like? How do you help clients through that?
We start with, of course, what do you want to do? Do you want to do grant-making, setting assets aside to support 501(c)(3)s that already exist? Or is there something you want to accomplish that no group out there is currently doing? If so, you might need to go the route of fiscal sponsorship or set up your own entity and find people to do that work, whether that’s yourself or hiring staff and building out a mission statement, because the work isn’t currently being done. That’s where we start: some conversations around that. From there, we pick whichever vehicle or service is appropriate and get to work.
If it’s a donor-advised fund, those are actually really simple to set up, which is why you see more and more people using them instead of private foundations. They’re easier to spin up, easier to close down when you’re done with them, have much lower ongoing costs, and you can do most of what you’d want to do through a private foundation through a donor-advised fund instead.
Are there solutions for people below the roughly $30,000-a-year mark you mentioned as a good starting point for a donor-advised fund, but who still want to take advantage of some of the strategic tax and philanthropic benefits?
I’d say if you just want an account to set your dollars aside for charitable giving but you’re below that dollar amount, we’re probably not the best solution for you, but there are other options. CharityVest and Daffy are two other donor-advised fund providers that cater more to that size of account, so those are great options to look at. On the higher-income side, donor-advised funds make sense well up into the tens of millions of dollars, as long as they cover what you want to do. There are times you might want to go with a private foundation instead, for example, if you really want to hire staff to carry out your charitable mission. You can’t hire staff out of a donor-advised fund; you’d need either a private foundation or fiscal sponsorship for that. So that’s one case where you might end up choosing a private foundation.
That answers it. I think when I consider philanthropy, for myself over the years, or for a lot of the clients we’ve talked with, there’s a bit of a gap between really understanding what someone can get into and having the intentionality to do something meaningful for their philanthropy, and potentially even making it part of their legacy. People want it to be genuinely meaningful, they’re looking for a cause that resonates, maybe some kind of impact investing, or something they’re passionate about, or something that supports the family’s values. Is there any guidance you can give people as they think through what kind of philanthropic focus could be meaningful and important to them, given there’s really a sea of different opportunities out there?
There really is. There are millions of 501(c)(3)s out there. Some clients who come to us know exactly what they want to do. They’ll say, “We’re setting up a donor-advised fund because we want to bunch our charitable giving for the next five years, but we’re going to support this one group every year,” or “We’re just going to pay our tithing to our church every year for the next five years, so don’t bother us outside of that.” They’re set; they know what they want to do.
Others come to us and say, “I know I want to give some money away, and it’s most tax-efficient to put it into a donor-advised fund now, but I’m not really sure what I want to do with it.” For those donors, the conversation usually starts with: what geography do you care about, and what impact area do you care about? Some donors say they care a lot about solving homelessness in their home city, or about women’s empowerment in sub-Saharan Africa. Those are the initial questions, geography and impact area, and they help narrow things down.
From there, we’re usually looking at which charities fit that mold, and then at the outcomes of those charities: not just how much money they’re spending and what their activities are, but what they’re actually changing in the world. They’ve identified a problem, identified their solution, and shown how their intervention affects that problem, and from there, there should be real outcomes. Not just “we dug five wells this year,” but “because of the wells we dug, this many people no longer need to walk four hours for water every day, so they’re able to get an education.” That’s an example of how focusing on outcomes rather than outputs helps you understand the actual change a nonprofit is creating in the world.
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Love that one. One thing I think is that philanthropy can be one of the biggest tools for creating a family legacy, by teaching values to the next generation. Can you give us any examples of how people have structured foundations or donor-advised funds to do that?
Sure. One thing you can do with a donor-advised fund is establish a succession plan: at my passing, I want the donor-advisor privileges, control over these assets, or recommendation privileges, to pass to my spouse, my kids, or my grandkids. We encourage donors to set that up and begin educating their children or grandchildren that they’ll be inheriting this responsibility to use these dollars to better the lives of others.
We’ve had a few donors set up a quarterly or annual family meeting about the fund, where they’ll say, “Grandkids, here are five different charities, here’s what they all do; go do some research, find which one you’re most in support of, and make your case and vote.” Whoever the family votes to support the most is who they’ll send a grant to that year. That’s an example of pulling in immediate family or the second or third generation, where everyone votes and debates which nonprofits and causes matter to the family and to the family’s legacy. It’s an interesting approach.
I love that. What do you think actually separates ordinary charitable giving from an intentional philanthropic strategy?
Sorry, one more time?
If you were to break it down: charitable giving versus intentional philanthropic strategy. What really separates the two?
I’d say some giving is very opportunistic, like the last charity whose annual gala or fundraiser you attended, where they asked for a donation and you gave one. That’s haphazard support of random organizations. On the more intentional side, I think it starts with optimizing your giving based on tax efficiency and when you actually want to give; separating those two considerations is one way you set yourself up for success. From there, it really is spending time on the questions of what geography matters to you, what impact area matters to you, which groups are doing that work, and how you can cultivate a relationship with those groups, get to know some of their staff, and see the work and outcomes they’re creating. Then you can thoughtfully plan gifts around that. That gets into more planned giving, where people do things like life insurance policy donations, planning big end-of-life gifts or other significant planned gifts.
Look beyond how much a charity spends and focus on the outcomes they’re creating.
When do you think is the best time for clients to start reaching out to you and begin planning? Is it when they’re thinking about their legacy plan, because of a potential liquidity event, because of a particularly big income year, or is it something more proactive, just building an intentional strategy over time?
I’d say you can start whenever, but what we tend to see is that there has to be some event forcing the donor’s hand. End of year is one: we probably do 80% of our business for the year in just the last two weeks of December, because everyone knows their income for the year by then and needs to get their gifts in before the tax year ends. So they’ll make a gift to a donor-advised fund right at the end of December. Any time is good, but these deadlines tend to force action, and end of year is one we see often. Like you mentioned, right before a liquidity event is another: someone realizes they’re about to have a huge sale and their income is going to be large for the year, so they start shifting into philanthropic thinking and figuring out how to do it efficiently, working against the deadline that the business is going to sell on a certain date, so they need to get a gift done a month ahead of time to do it efficiently.
If you could give just one piece of advice to the audience about getting their own philanthropic strategy in place, what would it be?
If you have a liquidity event coming up, don’t wait until after you sell the business, pay all the taxes, and then start thinking about your charitable giving. You really want to be doing it before that sale happens, so you can save on capital gains and get a larger deduction by donating before the sale.
Awesome. Phoenix, really appreciate your insights and wisdom today. If people would like to reach out to you and learn more about your services, how can they do that?
Our site is uicharitable.org, that’s the letters U-I, then charitable.org. If you go to uicharitable.org/learnmore, that’s where you can learn more about our products and schedule a call with us if you’d like to chat further. That’s a good place to go.
Excellent. Thanks again, Phoenix, really appreciate it.
Thanks for having me, Dave.
Thanks for listening to this episode of Wealth Strategy Secrets. If you’d like a free copy of the book, go to holisticwealthstrategy.com. If you’d like to learn more about upcoming opportunities at Pantheon, visit pantheoninvest.com.