Donor Advised Funds

Donor Advised Funds: The New Technology of Philanthropy

The saying used to be, “giving costs,” but no more. The new technology of philanthropy has dramatically decreased the setup and operating costs of a family foundation. It no longer takes a long time or requires great sums in accounting and legal fees to establish your own Family Foundation. With Legacy, you can get the job done in a matter of minutes for free.

Families can create their own Family Foundation as a Legacy Donor Advised Fund. This empowers the family to support their charitable causes, receive immediate tax benefits, and implement Next Generation Preparation to help the family succeed at what matters most. Because Legacy is independent, the family has more choices for charitable gifts, investing the funds, and holding charities accountable.

What is a Donor Advised Fund (“DAF”)?

A Donor Advised Fund is a charitable account or fund created under the umbrella of a parent charity. Contributions to the account are a fully tax deductible completed gift. Anyone can donate to the fund. Donors typically name the fund and advise how it is invested and its ultimate charitable disposition. In order to get favorable tax treatment, all decisions are subject to approval by Legacy’s independent Board.

Legacy Donor Advised Funds have a number of substantial benefits over private foundations in addition to the lower set up costs.

  • They are “public charities” rather than private foundations, so a greater portion of the gift will be applied as a tax deduction.
  • There are no excise taxes on portfolio earnings.
  • There are no compulsory 5% distributions (although most Donor Advised Funds collectively give away much more than 5% on a voluntary rather than compulsory basis).

Donors in effect outsource the tax returns, IRS compliance, state compliance, and due diligence to Legacy. The pooled resources, shared costs, economies of scale, bulk purchasing power of Legacy keep the overhead at or near 1% (as opposed to the 8% to 15% annual costs typically associated with private foundations).

Legacy Donor Advised Funds also bring expertise to the table to provide solutions and answers to Donor tax, business succession, and estate planning issues. Legacy coordinates closely with Donors and the Donors’ advisors to integrate the charitable planning with other estate and business planning structures. Legacy Donor Advised Funds are often the remainder beneficiary of CRUT’s, CRAT’s, CGA’s, and over-funded IRA and 401(k) plans. Dollars that are otherwise lost to taxes can often be captured for charitable use with appropriate planning. Taxes on income, capital gains, and our estates make involuntary philanthropists out of most of us. Used properly, the Legacy Donor Advised Fund permits the family to make the decision on how the money is used to benefit society, rather than sending it off to the politicians.

Accountability

Importantly, Legacy Donor Advised Funds empower Donors to hold their charities accountable for the gifts they receive. They can carry out and even perpetuate a Donors’ charitable mission with (or without) the involvement of future generations. Perhaps most importantly, they can play a major role in helping future generations avoid the psychological and spiritual disorders that often attend inherited wealth. When charitable giving is done just for the tax incentives, the tax benefits are the only benefits. When charitable giving is employed in a family as a leadership tool to inspire and teach, the benefits ripple through the generations and cannot be measured.

What is the downside?

Instead of dealing directly with the IRS for compliance and signing their own checks as a private foundation permits, Donors will instead work with the independent officers and Board of Legacy. Legacy wants to affirmatively help Donors accomplish their charitable mission, and will work with Donors to craft grant requests and investment requests in a manner than can be readily approved. This frees up Legacy Donors to focus on the charitable mission rather than on the details of compliance and due diligence.

It is for these reasons that a Donor Advised Fund is often described as the fastest, easiest, and least expensive way, on the planet, to establish a family foundation. It is no wonder the Wall Street Journal recently reported that many who have invested years and small fortunes in establishing and running private family foundations are now switching to Donor Advised Funds.

Comparing Options

The parent charities that offer Donor Advised Funds include commercial enterprises (that benefit by managing the money), local community foundations (that benefit a specific area), cause-oriented organizations (that benefit a particular school, church, or hospital, etc.), and independent organizations (best suited for customized independent investment, diverse distributions, and Donor flexibility). The cost can vary significantly, and is sometimes hidden or hard to see.

Why Choose Legacy

Legacy is an independent Donor Advised Fund platform and is also an operating charity. This means that Legacy is not tied to a specific investment platform, cause, or geographic region. Legacy supports all qualified charitable causes in accordance with Legacy’s mission and the charitable intentions of Legacy Donors. When Donors’ or their families move, Legacy is able to support causes throughout the world. The investment platform for the Donor Advised Fund may be customized to fit the individual needs of each Donor Advised Fund.

Laws and regulations continue to change. Organizations alter the programs they offer and the values they support. Legacy has the ability to grow and change as needed to preserve Legacy Donors’ charitable intent, regardless of the inevitable changes that will occur in the future.

Legacy has a dynastic succession plan for preserving Donors’ charitable intent and values and holding Legacy accountable. Do you have a succession plan for holding future generations accountable to the values you consider important?

What are the Benefits?

Few charitable planning opportunities offer the versatility and administrative efficiency of a Legacy Donor Advised Fund. A Legacy Donor Advised Fund allows the Donors to build and maintain a lasting social legacy, without the complexities, costs, and administrative burdens associated with private foundations. Donor benefits include:

  • Immediate Tax Deduction
  • Avoidance of Capital Gains Tax
  • Independent Tax Planning & Charitable Support Decisions
  • Future Funding
  • Simplified Administration

What can Donor Advised Funds Support?

  • Public Charities
  • Religious Organizations
  • Educational Institutions
  • Philanthropic Programs & Initiatives
  • Other Qualifying Non-Profits & Charitable Causes