Putting your donor advised fund to work wisely means choosing the right charities to benefit from your recommendations.
Choosing charities to support comes down to looking at two main criteria: what do they do and how they do it. Public charities that manage donor advised funds often pride themselves on the guidance and expertise they can offer on specific charities, causes, and organizations — and some will suggest alternatives when a recipient you recommend turns out to be ineligible or not a legitimate charity.
But doing your own research can be rewarding in its own right. It can help you pinpoint charitable organizations that do good work for the causes you care about —or it can open your eyes to a new area of philanthropy that you may not have considered before.
How to choose a charity?
A charity is a 501(c)(3) nonprofit organization that is committed to helping a cause, usually to benefit the public good in some way. Charities support people in all aspects of their lives, as well as communities, animals, the arts — the list goes on and on. Charities are tax exempt — which is the reason that gifts and donations to them are tax deductible — and must gain this status from the government. To check if an organization has charitable nonprofit status, you can go to GuideStar.
Selecting a charity to support is like choosing any organization with which you are considering doing business. On a basic level, you should look at how the charity presents itself through its website, written communications, and its staff. Equally important is to review the makeup of the board of directors. The members are not only fiscally responsible for the organization, but set its policy and guide its mission.
The documents you should read are its tax filings: IRS forms 990 and 1023. You should also obtain a copy of the organization’s most recent annual report and audit. A key number is the group’s overhead expenses — they should be reasonable relative to the overall budget.
On a less scientific level, plain old word of mouth is a good way to judge and choose. If you’ve heard a lot about what a certain charity has accomplished, chances are your money will be put to good use as well.
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Minimums and frequency
The dollar amount of each recommended grant, and how often you may recommend one, depend upon the parent charity that manages your fund. Most parent charities put no limit on how many gifts you can advise, although most gifts must be a minimum amount, usually in the $100 to $250 range, though it may be as much as $1,000 or more. And some parent charities may require an annual payout of a certain percentage of your account value.
When one of your recommended grants is approved, you may have the option to either receive recognition or give the gift anonymously. In the latter case, the receiving organization would simply get a check from the parent charity, with no specific donor mentioned. Some people prefer to give anonymously because it affords a degree of privacy and keeps gifts out of the public eye.
Added benefits of anonymity can be keeping your name off of mailing lists and preventing unwanted solicitations. The anonymity option is one of the advantages of DAFs over private foundations, where legally each gift must be a matter of public record.
Another option is to give the gift in another person’s name — either in their memory or in their honor. Some donor advised funds are set up entirely in this manner, so that all gifts from the fund are given in the name of a loved one.
Limitations and restrictions
Parent charities follow guidelines known as best practices in approving grants.
Most parent charities will not make grants for:
- Tuition payments
- Grants to an individual
- Travel expenses
- Nonoperating private foundations
- Membership dues
- Event tickets or goods purchased at a charitable auction
- Political candidates or parties
- To satisfy a pre-existing pledge
Receiving organizations must fit one or more of these categories:
- Public nonprofits. Charitable organizations that are tax exempt under Code Section 501(c)(3) and are public charities under Code Section 509(a)
- Operating private foundations
- Religious or educational organizations
- Governmental agencies supporting education, healthcare, and other acceptable social goals
Some parent charities allow you to give to international charities, though this will often cost you an additional processing fee because of more complicated needs for due diligence.
Endowing charities
In addition to recommending grants to be paid out of your DAF in your lifetime, you may also be able to endow a charity by naming it as a beneficiary of the DAF upon your death. The charity may either receive the entire balance of your fund in one grant, or the parent charity may pay out a specified amount, often designated as 5% of the fund’s value, on an annual basis.
When discussing donor advised funds, one issue that regularly crops up is donor control. It is true that your initial gift is irrevocable, and that the parent charity’s board of directors has final approval or veto power on where money from your account can be given. That’s why it’s key to open your fund with a charity or foundation that is compatible with your values, goals, and interests, or is neutral enough not to inhibit your philanthropic goals.
Recommending Grants For Charity by Inna Rosputnia
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