Donor Advised Fund Overview
The primary goal of the Los Altos Community Foundation (LACF) is to support community building and part of that effort is to help individuals and families pursue their philanthropic goals. Recognizing that families and individuals need the freedom and flexibility to define and accomplish their charitable goals in their own unique ways, the Foundation has created a category of gift called the Donor Advised Fund.
You can facilitate your charitable giving by establishing a donor advised fund at Los Altos Community Foundation (LACF). Many individuals, families and organizations partner with LACF, utilizing the Foundation’s services and expertise to make their giving easy and effective. You can open a donor advised fund, receive an immediate tax deduction and begin realizing your philanthropic dreams. Making an impact has never been easier or more rewarding.
By creating a donor advised fund, you can organize all your charitable activities through one expertly-managed and cost-effective charitable vehicle. Your gift qualifies for an immediate tax deduction, and you can take your time deciding which organizations to recommend for grants.
Following are just a few of the benefits and services you receive with a donor advised fund:
- Expert help with in-depth knowledge to develop your charitable giving strategy and goals.
- Grants administration and processing. LACF will issue checks to your chosen charities and handle deposits to the fund.
- Flexible and strategic investment(s).
- The opportunity to name your donor advised fund. You may choose to name the fund for your family or a loved one. You also have the option to remain anonymous or assign a unique name reflecting your charitable mission and values.
- Quarterly printed fund statements.
- The opportunity to create a family philanthropic legacy by naming your children or other family members as successor advisers.
- Earnings on your fund are tax free enabling you to expand your charitable giving.
To open a Donor Advised Fund, fill out the agreement: LACF Designated Fund Form
Donor Advised Funds Provide a Flexible Approach to Individual and Family Philanthropy
The Donor Advised Fund provides donors maximum flexibility; immediate tax benefits; tax free growth of funds; the ability to schedule charitable contributions over time; a record of donations; and freedom from the responsibility and cost of legal and administrative details. DAF’s provide greater tax benefits and more privacy than those afforded by private foundations. These features enable donors to focus their philanthropy on the rewards of giving – building their own community, supporting the charitable causes in which they believe and working together as a family.
Donor Advised Funds embody a number of benefits that cannot be achieved by individuals making annual charitable contributions. Among the advantages are:
- Efficiency and Cost-Effectiveness: A Donor Advised Fund is created by a standard agreement between the donor and the Los Altos Community Foundation. There are no costs associated with the opening of a Fund. Investment management fees vary according to the investment strategy selected. The Foundation provides check writing, bookkeeping, investment management, tax reporting, auditing, quarterly reports and copies of correspondence accompanying grants.
- The Foundation’s management costs are covered by an annual fee assessed on the balance of the fund and paid monthly. Typically the fee is 1% with an annual minimum determined by mutual agreement.
- Personalization: Donors select the name of their Donor Advised Fund such as “Joe and Barbara Smith Fund” or “Smith Family Foundation.” If approved by the Donor, these names may be listed in the Los Altos Community Foundation’s publications. Some families prefer a name that protects their identity, such as “Adobe Creek Foundation.” Gifts can remain anonymous or be fully named and acknowledged. The Foundation provides personalized stationery for the family’s grant-making when they do not wish anonymity.
- Tax Advantages: Gifts to a Donor Advised Fund qualify for the maximum income tax deduction. For gifts of cash, donors can deduct up to 50 percent of Adjusted Gross Income (AGI) in the year of the gift. Gifts of appreciated property avoid capital gains tax and are deductible at full fair market value, up to 30 percent of AGI.
- Growth of Charitable Assets: Donor Advised Funds are pooled in income-producing accounts with gains allocated to each Fund. Donors select the appropriate investment strategy for their Donor Advised Fund, depending upon their charitable goals. The Donor may also recommend the fund management organization they would like to manage the fund. Income and capital gains accrue to the Donor Advised Fund tax free. Donor Advisors may select an investment option based upon the goals of their fund.
- Grant advice and evaluation: The Foundation is in touch with local programs and has access to information on national charities. It can provide Donors with information regarding specific organizations and pressing community needs. The Foundation often learns of exciting projects in the community and shares these opportunities for giving and involvement with Donors.
- Timing: The Donor Advised Fund is a mechanism that permits donors to “bank” tax-deductible dollars when it is most convenient for them, recommending gifts over time to nonprofit organizations of their choice. A Donor Advised Fund is especially useful for donors who want to take a charitable deduction in one year and make distributions over several years.
The following are the steps in establishing and giving from a Donor Advised Fund.
When a Donor Advised Fund is established, the Donors specify their areas of interest. This allows the Foundation to provide customized grant-making information to the donors and connect them with appropriate charities and community projects. The Donor selects its own governance structure and determines who will formally authorize grant recommendations to the Foundation. The minimum recommended amount to establish a Fund is $2,000. The Foundation is managing Donor Advised Funds ranging in size from $2,000 to $1,200,000.
The grant-making process begins with a written grant recommendation from the Donor. By law, the Foundation – through its Grants Committee – has the right and duty to make all final decisions on the actual distribution. The Foundation evaluates all grant recommendations, and ensures that the proposed recipients are bona fide nonprofit organizations. The Foundation may also discuss with the Donor changes to the recommendations that would help the Donor better accomplish their goals.
Grants can be made locally, regionally or nationally from both income and principal. Donors may also designate the purpose of the fund to a particular institution. Donors may recommend as many grants each year as they wish from both income and principal (the Foundation prefers a $200 grant minimum).
By law, the Foundation – through its Grants Committee – has the right and duty to make all final decisions on the actual distribution.
Grants up to $2,000 are approved by the Chair and confirmed by the Grants Committee, a committee of the Board of Directors (generally one to two week turnaround). Grants over $ 2,000 are approved by the Grants Committee (generally three to four week turnaround). Approval times may be longer for organizations to which we have not made grants previously. Grants are reported to the Board but the donors are not identified.
If the organization has previously received a grant from the Foundation, indicating that supporting this organization helps achieve the mission of the Foundation to build community and support the nonprofit sector, the grant is processed without seeking additional information from the organization. The Foundation keeps a file of all local charities and organizations to which they have made grants.
If the organization has not previously received a grant form the Foundation, we will verify their IRS 501(c)(3) status by looking them up on one of the online directories of nonprofit organizations. Their tax return (Form 990) will also be obtained from an Internet look-up. In some cases, the organization will be contacted to obtain current information. This information is used to verify that support of the organization helps achieve the mission of the Foundation. When all information has been received and evaluated, the recommendation is processed for approval.
Following final approval of the grants, a check and grant letter are prepared using stationery containing both the letterheads of the Donor Fund and the Community Foundation. The letter will indicate if the Donor has recommended the grant for a specific program within the organization.
If you request anonymity, the letter will read “This grant was recommended by an anonymous donor to the Foundation,” and Donor Fund stationary will not be used.
If they wish, donors receive copies of all correspondence for their records. In addition, grant recipients are asked to acknowledge the gift directly to the Donors.
Donors receive quarterly financial reports listing grants made, contributions received, and income received. The Foundation provides the necessary professional services of check writing, investment management, tax reporting, and auditing. Tax returns need not be filed for Donor Advised Funds. We provide donors with the highest quality of service possible, and are eager to join with charitably-minded citizens to advance the well-being of our community.
Note: LACF is not engaged in rendering legal, financial, or tax advice. Information in our publications and on our website is provided as a service to provide general information about charitable giving. Many topics related to charitable giving have complexities and nuances that cannot be adequately detailed in brief articles or announcements. Individuals’ personal situations may vary. Please consult your financial or legal advisor. Performance data is based on past performance and is no guarantee of future results. If you would like to report discrepancies with information presented, please contact us.