More Family Foundations Transferring Assets to Donor-Advised Funds

Frustrated by the upkeep, time commitment, and costs involved, more and more philanthropists are closing their family foundations and transferring the assets into donor-advised funds, the Wall Street Journal reports.

Donor-advised funds invest assets and make grants to charities from individual accounts based largely on donors' recommendations, but they operate as independent charities, allowing donors to take an immediate tax deduction. The funds also typically have a staff that pools investments on behalf of individual donors and attends to all the necessary record-keeping and due diligence, keeping fees lower than those charged by lawyers, accountants, and other advisors who administer foundations for clients. The annual fees associated with a $50,000 donor-advised fund at the Vanguard Charitable Endowment Fund, for example, are only $425 a year, said Benjamin Pierce, the fund's executive director.

Donor-advised funds have other attractions as well. They impose no annual distribution requirements; investment gains are generally untaxed; and donors get larger tax breaks — half their adjusted gross income for an annual cash contribution and 30 percent for appreciated securities, compared to the deduction for foundation donors of 30 percent for cash gifts and 20 percent for appreciated securities. Privacy is another potential benefit. Foundation tax forms, which contain details on grants and other personal information about a donor, are easy to find on the Web, while the public forms filed by donor-advised funds don't list individual accounts.

According to the National Philanthropic Trust, a donor-advised fund in Pennsylvania, total assets in donor-advised funds in 2007 reached $27.7 billion, up from $7.5 billion eight years earlier. The Fidelity Charitable Gift Fund at Fidelity Investments expects to increase the number of foundation donors it converts to donor-advised funds this year by about 43 percent from a year earlier, while the Vanguard program converted about twice as many foundations into donor-advised funds in 2008 than it did in 2007. And given the growing interest in donor-advised funds, the future could mean even faster growth for the funds.

Mike Spector. "Family Charities Shift Assets to Donor Funds." Wall Street Journal 04/22/2009.