The January 28 New York Times article, Weighing the Best Vehicles for Philanthropic Giving , provides a concise and apt comparison of private foundations and donor-advised funds. We at CICF would highly encourage professional advisors in our community to use this piece as an informational resource as you talk with clients about their options when establishing a charitable giving vehicle.
We couldn't agree more with the benefits of donor-advised funds that the reporter outlines. From simplicity and low cost to anonymity and compliance oversight, donor-advised funds alleviate nearly all of the challenges inherent in private foundations. There are, however, further benefits of donor-advised funds and clarifications needed that the Times reporter over generalized.
First, community foundations were not mentioned in the article as a growing - and possibly superior -alternative to the commercial entities that administer donor-advised funds. Central Indiana Community Foundation (CICF) is one of over 700 community foundations across the country, as well as one of the largest and most sophisticated. CICF donor-advised funds can make grants to any non-profit in the US.
Why is this so important?
Community foundations offer direct, hands-on assistance and many benefits to donor-advised fund holders including a unique understanding of local needs, and the community resources meeting those needs. Grantmaking expertise, charitable best practices, and customized family engagement services are available as part of your donor-advised fund package. Commercial gift funds are only a convenient tool and solely provide transactional services either on-line or through a telephone call center. CICF offers the same convenience, PLUS provides individual attention, local non-profit sector expertise, and many strategic charitable planning services for corporations, individuals, couples and families. Fees charged by commercial gift funds go to support the non-profit arm of the financial institution that administers the donor-advised funds. Fees charged by CICF stay in your community and are used for countless projects that directly benefit people in central Indiana.
Second, the article generalizes (and we believe misleads us) on the issue of control with regard to donor-advised funds. Three specific points need to be addressed:
1. While technically the donor only makes "recommendations" from a donor-advised fund, in reality, all grants are made as long as they are legal within the IRS regulations. This goes for private foundations as well. CICF's board does not scrutinize each and every grant. It is our responsibility to make sure each donor is making legal distributions from their fund.
2. While it is true donor-advised funds cannot fulfill a pledge already made to a charitable organization, it can make a multi-year or multi-payment grant. Therefore, someone with a donor-advised fund can contribute, for example, $10,000 to their alma mater payable in five installments of $2,000 each over a period of time.
3. It is CICF's policy to pool the assets of all donor-advised funds for investment purposes, and we are a very sophisticated, proven, and responsible steward of these investments. The banker quoted in the article says many philanthropists may not consider donor-advised funds because they "...don't want to be relegated to an asset allocation that is a series of mutual funds." CICF has $600 million in investable assets, spread across all investment asset classes, guided by our community's smartest investment minds with advice from one of the country's leading investment consultants. The result is consistently outstanding investment returns that are in the top quartile of community foundations nationwide.
Finally, the topic of legacy as discussed in the article makes it seem as if a family is virtually invisible if it doesn't have a private foundation. While this may be true with commercially sponsored donor-advised funds, it couldn't be further from the truth within community foundations. With nearly a century in business, CICF has a bias toward longevity, legacy and the use of philanthropy as an essential and meaningful way to perpetuate family values. We work hard with each family that wants to establish a legacy through philanthropy, or carry-on the legacy of the family over multiple generations through their charitable partnership with us.
Please use the New York Times article (and this additional information) with your clients as it offers valuable dialogue as they consider the smartest charitable giving vehicle. A comparison chart provides another objective look at charitable options for you and your clients. Private foundations, while right for those with significant assets (over $10 million in our opinion), should not be the first, and especially the only, charitable enterprise recommended to clients. A donor-advised fund with a community foundation is a turnkey charitable tool with personalized services that alleviates administrative burdens and gives donors the best of philanthropy -- experiencing the joy and witnessing the impact of their generosity.
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