Donor-Advised Funds have grown in popularity in recent years as vehicles for charitable giving. Vanover Legal & Consulting wants you to be informed when determining whether a Private Foundation/Public Charity or Donor-Advised Fund best suits your needs. Much of this decision rests on one question – do you prefer control or simplicity? Consider the following:
1. Administrative Considerations
Time and money. “How long does it take to obtain tax-exempt status from the IRS?”; “How much are the filing fees?”; “How much would I pay to maintain a Donor-Advised Fund?” These are all important questions.
Private Foundations/Public Charities are legal entities that carry costs of formation, operation, and ongoing legal and tax compliance. A Donor-Advised Fund is a fund within the umbrella of an existing tax-exempt organization so start-up expenses are minimal. Ongoing administrative fees may apply.
If operating a Private Foundation/Public Charity, it is important to utilize a network of professionals to ease the administrative burden. We would love to help!
2. Grantmaking/Control
Without diving deeply into distribution rules, Private Foundations/Public Charities may use contributions a bit more freely than Donor-Advised Funds – of course, in furtherance of its mission.
If you would like your organization to host community programs, Private Foundations/Public Charities may do so independent of any partnerships. If you simply want to grant money to qualified tax-exempt organizations, a Donor-Advised Fund would be sufficient.
3. Legacy
A Private Foundation/Public Charity may continue in perpetuity. This is important if the goal of the organization is to carry on a family name. Depending on the relationship with sponsor, Donor-Advised Funds may be subject to time limits. If the sponsor ceases operations, the Donor-Advised Fund will cease operations since the Donor-Advised Fund is not legally separate from the sponsor.
4. Tax Implications
Donations to Private Foundations/Public Charities and Donor-Advised Funds are tax deductible, each subject to different limitations. The value of a donation of cash or public traded stock is the fair market value for both structures. The value of a donation of closely held stock or real estate is fair market value for a Donor-Advised Fund, but limited to the donor’s cost basis for most types of Private Foundations. In that situation, a donation to a Donor-Advised Fund would present a greater immediate tax deduction. Private Foundations may also be subject to excise tax on investment income.
5. Privacy
Private Foundations/Public Charities have annual disclosure requirements that may include the listing of contributors and the amounts donated. These disclosures are public information. Donor-Advised Funds have no such publicly-available donor listing, which allows donors to make anonymous gifts.
If you are determining which structure best suits your charitable needs, contact us today for a free consultation.
