Should charities actively promote gifts to donor advised funds and private foundations in addition to direct gifts to their own endowments?
The growing trend of aspiring philanthropists is to make substantial gifts to donor advised funds at community foundations or commercial investment firms, or to establish their own foundations, instead of giving directly to qualified public charities. What are the pros and cons of qualified charities throwing up their hands (just a little) and consciously encouraging their donors to consider these alternatives to giving directly to charity? After all, your charity at least gets the distributions from the fund, doesn’t it?
In the inimitable words of ESPN sportscaster Lee Corso, “Not so fast my friend.” The Pension Protection Act of 2006 states that donors have advisory privileges—not rights—over payouts from a donor-advised fund. For example, the policies of some community foundations limit control to one generation of successors, meaning that, once that generation is gone, the community foundation has no further obligation to honor the original donor’s wishes for distributions. Just imagine what charitable distributions might look like after another generation and after multiple staff turnover at the foundation.
Even in cases where multiple successors over multiple generations are permitted, there is a strong likelihood that those successors will lose interest after two – three generations and relinquish control to the foundation.
Private/Family Foundations offer greater assurance of perpetuating a donor’s original intentions, depending on instructions drafted when the foundation was created. Even so, get past two generations and memories become faint and motivation wanes.
No question – a gift to a donor advised fund is better than no gift at all. But qualified charities should make a strong case for why gifts to endowments should come directly to them to perpetuate the donor’s support of the mission.
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