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What is a Donor Advised Fund (DAF)?
Donor Advised Funds (DAFs) were popularized by Community Foundations decades ago. A DAF is a fund
established on the books of the Community Foundation by a donor. The donor and the Foundation, through a
"Fund Agreement" set up parameters for the operation of the particular DAF, especially as it relates to the
donor or persons named by the donor to advise the Community Foundation on grant making from the fund.
Because the DAF gives the donor immediate income tax deductions (and possible state tax credits) the fund
assets belong to the Community Foundation, and the donor’s power to advise, or specify the persons who do
the advising, is just what the word implies, advisory. To get the immediate deduction, the ultimate control has
to be in the Community Foundation or other charity which offers DAF services.
Enter Fidelity. Fidelity Investment Group, through a massive national publicity, has burst upon the national
scene, offering donor advised funds to its clients, and lately as a means of attracting new funds to manage.
Recently national firms such as Schwab, Vanguard, and Raymond James have created their own charitable
entities to offer DAF’s to the public.
WHY ARE DAF’S POPULAR?
A Donor Advised Fund permits individuals and families with moderate assets to obtain the psychological
satisfaction and the tax benefits of charitable giving without encountering the complexities of a private
foundation, such as those established by Americas wealthy families like Rockefeller, Ford, Mott, Kellogg, and
Gates, or of the somewhat less onerous requirements of a "supporting organization." Private foundations are
subject to a special set of IRS rules and operating requirements which make them impractical for
endowments of less than two million dollars. "Supporting organizations" offer fewer restrictions than private
foundations , but will carry operating complexity and expense.
The donor advised fund- DAF is every mans charitable foundation. The donor can advise (and in practice
direct) grant making policy and the charities to whom the grants are made on an annual basis.
WHY IS THE IRS INTERESTED IN DAF’S?
Because the Donor Advised Fund avoids the restrictions on "private foundations" and are considered
contributions to a public charity, the IRS is concerned with the possible abuses by donors through what is
regarded as excessive control over the endowment, which creates essentially a "private foundation" as
opposed to a public charity.
Publicized "abuses" by new arrivals on the scene such as the large mutual fund companies, have come to
the IRS attention and are the subject of continued rulings and regulations designed to set up guidelines
which Donor Advised Funds must meet.
WHAT IS THE SOLUTION?
As a professional advisor who counsels clients on fulfilling charitable goals, consider your local Community
Foundation. Community Foundations have pioneered Donor Advised Funds, and have been active in this
area for decades. Michigan is probably the leading state in the Union for both the number and representation
of Community Foundations. Every part of Michigan is now covered by local Community Foundations who are
in turn advised and sanctioned by the Council of Michigan Foundations, which is a state wide organization
consisting of corporate, private and Community Foundations throughout the sate of Michigan. The Council of
Michigan Foundations (CMF) provides support to local Community Foundations through funding of
investment monitoring services, assisting with both computer and software services, and providing
management consulting.
Perhaps most important to your clients, who are looking at endowment funds to carry on their names and
charitable purposes in perpetuity, is that Community Foundations support their local areas. The national
charities often have default charities, after one or two generations, which are hundreds of miles removed from
Northern Michigan.
EVERY MANS PHILANTHROPY
If your client is considering charitable giving as part of an estate plan, let them know about Donor Advised
Funds at their local Community Foundation as a way for a donor’s family to stay involved with philanthropy
and benefit their local area in perpetuity.
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
| WEALTH CONSERVATION: PROFESSIONAL ALERT Brandt, Fisher, Alward & Roy, P.C. |
| March 2001 DONOR ADVISED FUNDS - A SOLUTION TO CHARITABLE GOALS? by James R. Modrall III, J.D., C.P.A. |
| If you would like to receive future editions of the monthly Wealth Conservation Newsletter directly to your e-mail account, please e-mail our office using the following link: Estate Planning Newsletter |
| Brandt, Fisher, Alward & Roy, P.C. Attorneys at Law |