It’s your fund. Choose the right home for it.
Where you decide to create your donor advised fund will probably be based on a number of factors, including the mission of the parent charity, the charity’s ability to accept and process certain assets, the investment options available for your fund, or certain restrictions on giving that a charity might impose.
Although most donor advised fund programs follow the same basic rules and handle gifts in similar ways, the parent charity where your fund is established and managed, and sometimes that charity’s financial partner, can determine the ways in which your fund is handled, and how the assets will be or can be used.
Extended investment options
Some parent charities offer a more extended range of investment options than others, for example, in non-correlative investments. Those are investments that move independently of the overall stock market, and include managed futures, hedge funds, and futures on commodities.
Others offer socially responsible funds, for investors who prefer the option to screen out certain types of investments, or who want to support socially responsible causes, such as the environment, in multiple ways.
Choosing bank and broker for your DAF
Just as you might choose a bank or a broker with reasonable or competitive fees, the amounts that certain charities charge to manage your donor advised fund might be a factor in your selection. Although the fees are almost always less than administering a private foundation would cost you, they do vary and can add up. In most cases fees are asset-based, and as your account increases in size, an accordingly smaller percentage of your account value is charged in fees. No matter the value of your fund, here are some of the fees that you might expect to see.
- Charitable administration fee, calculated and paid monthly, that diminishes with the size of your account, and is generally no more than 1% of the account balance
- Investment fee, which is based on the way your fund is invested
- Liquidation and transaction fees for initial and subsequent gifts to your fund
- Underlying mutual fund expenses, accrued daily and deducted monthly from each mutual fund
- Special fees, such as processing overseas grants, legal fees for liquidating illiquid assets, or if you grant more than 95% of balance within 12 months of opening an account
- Investment adviser compensation
Some programs may also charge a one-time set up fee, an annual account maintenance fee, usually around $25, or a servicing fee, usually 0.25% of account balance, calculated and paid quarterly, or some combination of these fees.
Types of DAF
Programs Public charities
Those are nonprofit organizations, often with a nationwide presence, that exist to support philanthropic causes or other public charities and are exempt from federal income tax under Section 501(c)(3) of the tax code.
Although some public charities have a specific focus, such as religious or educational, there are also broad-based organizations and foundations that exist to support philanthropic causes in general. These organizations can be attractive choices as parent charities for donor advised funds, as they offer you tremendous flexibility in supporting causes of your choice.
Financial services companies
The financial services companies, including investment firms and mutual fund companies, sometimes offer DAFs as a special option for their advisory services clients. The program may be available through the company’s own foundation, or it may be offered through a charity that works in partnership with the company. These programs may offer the benefits of expanded investment flexibility and advice, and the ease of using assets that are already managed by the institution to fund your DAF.
There are more than 650 of them nationwide — are among the most common places to establish a donor advised fund. Created to benefit a specific city, county, or region, some community foundations require that a substantial part of your charitable giving supports the area they serve. That’s sometimes referred to as a geographic mission. These charities often simplify community-based giving even further by offering a selection of opportunities for your grants, for example, adult literacy, afterschool programs, or a local park renovation.
University or alma mater foundations
They are similar to community foundations in that part of your fund must go to support the university in some way. Hospital donor advised funds work similarly — though in some cases all of your grants must benefit the hospital, though you may advise what specific area of need within the organization you would like to support.
Some religious foundations
They provide yet another option for housing your donor advised funds. In many cases, the outside charities and causes are screened to make sure that they are in line with the parent charity’s values.
One way to increase your giving power is to add your assets to a group donor advised fund, sometimes known as a giving circle. Several donors who share an interest in specific causes or charities pool their assets into a single DAF, supporting a common cause and compounding the giving power that any individual fund might have. Some groups focus on giving back to the community and often choose to focus on supporting one cause a year.
Board of directors
Something else you’ll want to look at as you choose among charities is the makeup of the board of directors and trustees. The ideas, goals, and even personalities of these individuals affect the way the charity is managed, set its tone, and guide its mission. If the board changes significantly or moves in a direction that is inconsistent with your philanthropic goals, you may consider rolling your donor advised fund to a new fund at a new parent charity. You can usually find information about board members on the organization’s website, or you could request member profiles from an organization staff member.
Charitable giving is sometimes hindered by the daunting task of investigating or researching all the various charitable options, doing due diligence, or finding the perfect match between your interests and the causes and the organizations that most closely align with them. Charities and foundations that manage donor advised funds almost always offer some degree of guidance in choosing appropriate charities. They may also try to introduce you to charities that suit your philanthropic goals. And if for any reason you are not able to make recommendations, the parent charity has written policies describing how they will allocate your gifts.
Where To Create Your Donor Advised Fund? by Inna Rosputnia
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