Two Ways To Make A Difference
BERLIN - These days, as philanthropists prepare to parcel out billions of dollars to charitable organizations, there's an additional option for those who want to make a meaningful contribution.
A donor-advised fund, like a private foundation, allows philanthropists to fulfill their goals in an efficient, strategic way that can fit with overall financial plans. To weigh the merits of each approach, and the circumstances under which each is appropriate, consider these questions:
How much do you want to give? A private foundation typically requires initial funding of at least $1 million •€' and often much more. A donor-advised fund can be set up for as little as $5,000, and many operate with $50,000 or less. Yet there are also $1 million donor-advised funds. For those with more sizable assets, a foundation offers personal control and a greater sense of individual accomplishment.
How much time do you have? Donor-advised funds are set up with existing charitable organizations, which shoulder the administrative burden and have the staff to research charitable causes. A private foundation, however, is its own entity and requires extensive recordkeeping and individual IRS filings, as well as directors to oversee processes for awarding grants and evaluating how they're used.
How much control do you want? With a donor-advised fund, the donor recommends charities and can have considerable influence, but the final decision on how money is spent rests, ultimately, with the sponsoring organization. In a private foundation, board members or trustees decide which charities will receive grants and how the foundation's assets will be invested.
How involved do you want your family to be? While a donor-advised fund must usually be dissolved after a maximum of two generations, a family that sets up a private foundation can choose to have it continue in perpetuity, thus establishing a legacy of giving for future generations.
In general, foundations tend to demand more in terms of funding and family involvement and may repay that additional investment with extra control and opportunity. Donor-advised funds, by contrast, offer a less complex and less time-consuming way to contribute to a cause. Still, the differences between these charitable vehicles are more a matter of degree than substance, and a philanthropically inclined family could also use a donor-advised fund to make an enormous impact.
(The writer is a Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-9084.