More Family Foundations Transferring Assets to Donor-Advised Funds
This article was written by Mikke Spector of the Wall Street Journal.
Frustrated by the upkeep, time commitment, and expense of maintaining their family foundations, some philanthropists are closing their private foundations and transferring the assets into donor-advised funds, the Wall Street Journal reports.
Donor-advised funds invest assets and make grants to charities from individual accounts based largely on donors’ recommendations, but they operate as independent charities, allowing donors to take an immediate tax deduction. The funds also typically have their own staff, which pools investments on behalf of individual donors and attends to all the necessary record-keeping and due diligence, keeping fees lower than those charged by lawyers, accountants, or others to administer a foundation. For instance, the annual fees for a $50,000 donor-advised fund at Vanguard, are only $425, said Benjamin Pierce, the charity’s executive director.
Donor-advised funds have other attractions, as well. They impose no annual distribution requirements; investment gains are generally untaxed; and donors get larger tax breaks — half their adjusted gross income for an annual cash contribution and 30 percent for appreciated securities, compared to donors to foundations, who get only 30 percent for cash gifts and 20 percent for appreciated securities. Privacy is another potential benefit. Foundation tax forms, which contain details on grants and other revealing information about a donor, are easy to find on the Web, while the public forms filed by donor-advised funds don’t list individual accounts.
According to the National Philanthropic Trust, a donor-advised fund in Pennsylvania, total assets in donor-advised funds in 2007 reached $27.7 billion, up from $7.5 billion eight years earlier. The Fidelity Charitable Gift Fund at Fidelity Investments expects to increase the number of foundations it converts to donor-advised funds this year by about 43 percent from a year earlier, while the Vanguard Charitable Endowment Program converted about twice as many foundations into donor-advised funds in 2008 than it did in 2007. Given the growing interest in transferring foundation assets into donor-advised funds, the future could mean even faster growth for these funds.
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