Demystifying Foundations and Charitable Funds

It’s been an interesting winter so far. Heavy rainstorms in the West, snow in the East being measured by tonnage, and bitter ice throughout the Midwest and South. The economy, much like the weather lately, has been quite volatile these past two years. So in this down economy, how do we maintain our giving to favorite charities? The most important thing you can do for a charity is provide stability. Perhaps you’ve heard about private foundations and donor advised funds but if you’re like most people you may not know the difference between them and the benefits they can provide. You may know a friend who has a family foundation but may not really know what that means.

The popularity of donor advised funds has skyrocketed in the past two years. A donor advised fund is a fund established by you through another organization like the Fidelity Charitable Gift Fund. Thus, the assets you transfer are permanent. Basically, to set up a donor advised fund you transfer monies or securities to a gift fund, that gift fund then invests your assets and then you recommend annual distributions to nonprofit organizations. Furthermore, a donor advised fund eliminates the cost and time of running a foundation which means more support for your charity. The minimum gift for most donor advised funds is $5,000 and unlike private foundations there is not an annually required disbursement. The only requirement is a minimum grant level, which is approximately $50, depending on the organization managing the fund. Another benefit to a donor advised fund is that your privacy can be protected. Contributions and grants can be made anonymously. But, the largest benefit of a donor advised fund is that you can receive an immediate tax deduction that is up to 50% of your adjusted gross income for cash and 30% for real estate and securities which trumps foundation levels of 30% for cash and 20% for securities.

Another way to give is through a field of interest fund. A field of interest fund is set up like a donor advised fund and garners the same tax benefits. However, instead of you recommending where to make grants, you decide the specific issue you want to support. The monies from these funds are pooled with contributions from other like-minded individuals and a Board of Directors determines how best to fund the specific cause. The minimum investment to these funds varies so you should always research the fund you would like to support.

Finally, the historical benchmark for philanthropic giving has always been the private foundation. A private foundation like the Bill & Melinda Gates Foundation can be established by an individual, family or group of people who retain complete control over the assets. The operation of foundations is usually conducted by a Board of Directors (most times made up of the foundation’s creators). There are strict regulations private foundations must follow and donations made by the foundation are public record. Also, foundations must pay an excise tax on holdings and are required to pay out at least 5% of the fair market value of those assets each year. Due to the start up costs (lawyers, paperwork, time) creating a foundation can take a large initial investment. But despite the work involved, a private foundation can lead to building a legacy of philanthropy for a family or group, can distribute funds to a wide array of sources, and as stated above the funds remain under your control.

Hopefully, you have a little better understanding about how easy and beneficial these charitable vehicles are. You should consult your financial advisor before making decisions about setting up any these vehicles for philanthropy. GLAAD’s corporate partner, MorganStanley SmithBarney (MSSB), is offering GLAAD major donors valuable financial and gift planning information, along with sponsoring our Media and Alliance Circle events in major markets. If you don’t have a financial planner and would like more information about setting up a foundation, trust or planned gift, please contact MSSB’s Donovan Mannato.