A Donor Advised Fund is one of the most popular giving instruments available in the United States. With that said, I wanted to take a moment to demystify some of the most common misconceptions about who should open a Donor Advised Fund, how they work, and how they help.
“We have thought about opening a Donor Advised Fund, but we don’t have tons of cash available to justify opening one.”
We hear this one a lot. Many times, there is a preconceived notion that Donor Advised Funds are only for the super wealthy. This is not the case. A Donor Advised Fund can be opened with a minimum of $1,000 and is a great tool to manage giving. Cash is accepted, but many times the most financially advantageous contributions come in the form of non-cash gifts – publicly traded stocks, bonds, mutual funds, privately held stocks, and all forms of non-liquid real estate type assets.
“Opening a Donor Advised Fund at a financial institution is the same as opening one at the Laguna Beach Community Foundation.”
One of our newest fund holders moved their Donor Advised Fund from a financial institution to the Foundation. Why? Laguna Beach Community Foundation has minimal management fees of 1.5% on all contributions up to $1 million and .6% on everything thereafter. Considering our professional investment team is pro-bono, all management fees go to supporting the Community Foundation and enabling us to offer services like our curated grants portal to support other local nonprofits.
“Donor Advised Funds freeze money that would have otherwise benefited a nonprofit.”
All contributions to a Donor Advised Fund must be distributed to qualified 501(c)3’s. Some donors choose to immediately distribute these funds while others hold onto the funds for a period of time to meet their philanthropic giving strategy. A benefit to a Donor Advised Fund with the Laguna Beach Community Foundation is having access to a pro-bono investment team including wealth advisory professionals Laura Tarbox, Jim Fletcher, and George Wood. Over the past three years, our team has produced an annualized return of 11.1%. Given this example, more funding would be available for contribution to qualified 501(c)3’s and more philanthropic missions can be achieved.
“There is a lot of paperwork and administrative burden in opening a Donor Advised Fund. It’s easier to just send directly to the nonprofits I wish to support.”
A Donor Advised Fund can be opened in one day. The application takes anywhere from 10-30 minutes to fill out. Once the fund is opened, all granting and fund reporting is completed through an online donor portal. The Laguna Beach Community Foundation handles all of the administrative back office requirements necessary to ensure that all donations are managed properly and granted to qualified 501(c)3’s. A financial report is generated quarterly for all fund holders providing a detailed summary of contributions that will aid in tax filings. A Donor Advised Fund is an easy way to manage your philanthropic giving.
“A family foundation is the only way to execute on our family’s philanthropic giving goals.”
Like a Family Foundation, a Donor Advised Fund can be named to your liking – Jones Family Fund, Amy and Tom Anderson Fund, etc. A Donor Advised Fund provides an income tax deduction of 50% for cash and 30% for appreciated assets of Adjusted Gross Income while a private family foundation offers an income tax deduction up to 30% for cash and 20% for appreciated assets of Adjusted Gross Income. By opening a private family foundation, the following information is publically available: balance sheet detail (including investment holdings, a listing of directors (including contact information), every grant that is made (organization name and amount), and detail of administrative and investment management expenses. A more thorough comparison is available on our website here. A Donor Advised Fund is an inexpensive and administratively simple way to manage your philanthropic giving goals.
If you have questions about Donor Advised Funds, please feel free to contact Rachel Lindsay at the Laguna Beach Community Foundation at 949-715-8223.