For the past few decades, many Americans who believe in helping others have established Family Foundations. These are legal charitable entities into which an individual or family can make charitable contributions. While the money in the Foundation no longer belongs to them, they can manage the investments and the distribution of gifts to charities. They must abide by the same regulations as other Charitable Foundations, such as the 5 percent minimum annual disbursement.
In recent years, Donor-Advised Funds (DAFs) have allowed many more individuals and families to participate in this form of philanthropy. In fact, the number of Americans who own Donor-Advised Fund accounts has quadrupled in the past five years. Today there are nearly one million DAFs. Grants to charities from Donor-Advised Funds in 2018 totaled $23.4 billion.
Let me be clear, Family Foundations and Donor-Advised Funds are both wonderful giving vehicles that give you the tax incentive when depositing, and let you make gifts as you are ready. There are distinct differences that make each right for different people. A Foundation takes longer to create, requires a much larger initial investment, pays higher taxes and fees, and usually demands much more personal time invested into its operation. However, it allows the donors (or the Trustees they appoint) to have control over the investment and distribution of funds, and makes it easier to have the entire family involved and to continue to be run by heirs after the death of the initial donor.
On the other hand, a Donor-Advised Fund is relatively easy to open. It usually requires an initial gift to the account of somewhere between $5,000 and $25,000, depending on the Sponsor (the organization holding and managing the account). In most cases they receive better tax deductions. And, they do not face the same regulations as a Foundation. In order to gain these advantages, the owners sacrifice some of the control, independence, and flexibility of a Foundation. Once the account is established, the donor can instruct the Sponsor to make a gift to a charity at any time.
Both of these vehicles have helped encourage charitable giving, and have been a huge blessing to those of us working to better the world who depend on the kindness and charitable support of others. If you have questions or would like to talk further about this, please call me, Patrick Donahue, at (732) 380-7926, ext. 112.