CICF News

CICF News / 2010 / April / News Post
April 20, 2010
Donor Advised Funds

by Mary Stanley, J.D., CAP, CICF Senior Gift Planning Advisor

Mary M. Stanley, J.D.,CAP, Senior Gift Planning Advisor with CICF. She can be reached at marys@cicf.org.

Donor-advised funds are increasing in importance as more individuals, families and businesses are utilizing this vehicle of philanthropic giving. A donor-advised fund is established by donors who wish to be actively involved after the fund is established in choosing which specific charitable organizations receive distributions from the fund or in providing advice regarding investment of the assets in the fund, or both. The donor and/or an advisory committee designated by the donor recommend to the community foundation’s board grants to be made from the fund to public charities of the donor’s or advisory committee’s choice. The foundation must conduct its own appraisal of the donor’s recommendations and ensure the charitable status of the recommended recipients. Although the foundation board has ultimate legal control over all distributions from donor-advised funds, these funds can function for many donors as a low cost/ low hassle substitute for private foundations.

Community foundations have over 21,000 separate donor-advised funds, with an average of 152 funds at each community foundation. CICF has over 250 donor-advised funds.

Donor-advised funds offer donors several advantages over private foundations and other charitable vehicles, including:

Simplicity, Flexibility and Affordability. Donor-advised funds can be established quickly, in a matter of hours if necessary, have no start up costs, can be funded with a variety of assets, and allow the donor to support multiple charitable organizations through one fund—and one asset if desired. CICF’s minimum for donor-advised funds is $25,000. Administrative fees generally are one percent or less of fund assets.

Economies of Scale. Donors benefit by having fund assets invested with other assets of the foundation. CICF’s donor-advised endowment funds earned a 22.2% return in 2009. (It is also possible for donor-advised fund assets to be invested with the donor’s investment advisor, through our Charitable Relationships Investment Program.)

Tax Advantages. The availability of an immediate income tax deduction can prove very helpful to donors. Moreover, gifts to donor-advised funds at community foundations constitute gifts to public charities and are deductible up to 50% of adjusted gross income, as opposed to the 30% or sometimes 20% limit for gifts to private foundations. Donors also can deduct the full fair market value of gifts of real estate and closely held stock, whereas these gifts to a private foundation are deductible at cost basis. Finally, there is no excise tax imposed on donor-advised fund earnings, as there is with private foundations.

Anonymity. If desired, donors have the opportunity to give anonymously, which cannot be done using other philanthropic vehicles due to IRS reporting requirements. The entire donor-advised fund can be anonymous or just particular grants from the fund.

Legacy. The donor can choose to name the donor-advised fund after the donor or the donor’s family and call it a family foundation with associated name recognition and prestige. The donor also can establish a fund as a memorial to honor someone. Through donor-advised funds, donors can build lasting legacies to their families and the causes or charitable organizations they support. Depending on fund size, the donor can provide for successor generations to continue to advise the fund.

Corporate Foundation Ease. For corporations considering private foundations, donor-advised funds offer a “turn-key” operation with no or minimal additional staff time required. All administration, compliance, grantee due diligence, charitable organization research, etc. is handled by CICF, thus freeing up the staff to focus on the business of the corporation.
 

More about types of funds.