Donor Advised Funds
Bill was in the midst of estate planning, and was considering how best to disperse his assets to his favorite charities. If he named them in his will, those charities would receive a lump sum all at once. He wanted the recipients to receive support steadily over time to better meet their charitable goals. So he decided to establish a donor advised fund with his local community foundation and take advantage of benefits such as:
• Donor advised funds allow donors to give to charity anonymously. Grants from a private foundation are listed on the IRS 990 which is available to anyone with internet access.
• Donor advised funds allow donors to get a tax deduction in the year they need it, but allows flexibility regarding when the funds are disbursed for grants to charities.
• There is no 5 percent payout requirement for a donor advised fund, unlike doing giving through a private foundation.
• Donor advised funds are not subject to excise taxes, tax preparation fees and other administrative expenses that private foundations are charged.
• When setting up a donor advised fund, the donor can name successor advisors or arrange to convert the fund to a designated fund after the donor’s lifetime. The donor has the assurance that the community foundation will continue to honor the donor’s intentions in perpetuity.
Suddenly, December 31 was approaching, and Janice had not yet allocated her end-of-the-year charitable gifts. She needed time to think about these gifts, but she also wanted to take advantage of the tax benefits she would receive if she acted before the end of the year.
A solution would be to make a “directed gift” to the Greater Polson Community Foundation. Janice would then have the entire following year to direct how these funds would be dispersed. Each charity she chose would receive a check drawn on her “directed gift” fund and sent by GPCF to her designee.
Also, a “directed gift” also allows the donor to give support to a charitable entity which may not be a 501 c 3. An example: Last summer the Polson Chamber of Commerce benefitted from directed gifts that covered the cost of Polson’s hanging flower baskets. Because donors passed their donations through the Greater Polson Community Foundation (a tax-exempt entity), they received the tax benefit of making a donation to GPCF which in turn paid the expenses for the project. It was a win-win situation. The Chamber collected over twice the amount of money than in former years, and the donors were all eligible to receive for the first time a tax write-off for this donation.
If you, like Bill and Janice, are interested in learning more about establishing a donor advised fund or directed gift, please contact us at [email protected]. The Greater Polson Community Foundation is currently managing other donor advised funds and several directed gifts.