Last week, several of us from DonorsTrust attended Freedom Fest, the annual gathering in Las Vegas of libertarian and conservative thinkers, activists, leaders, and donors. At our booth, we had terrific conversations with conference participants. These folks asked wide-ranging questions. I thought it might be useful to compile the most common of them, along with the same answers we gave this inspired group of freedom lovers.
What does DonorsTrust do?
This is, as you might expect, the most frequent question we received. More often than I should have, I first responded by explaining we were a donor-advised fund or that we were the liberty movement’s community foundation. While this is technically correct, what we really do is help liberty-minded donors preserve their donor intent and manage their charitable giving in a way that is simpler, more tax-advantaged, and more secure than a private foundation or checkbook giving.
How do you decide where the money goes?
We listen to our clients. Each account at DonorsTrust has a client advisor who recommends grants from his or her account to any 501(c)(3) public charity. That’s the “donor-advised” part of a donor-advised fund. The giving is truly donor-driven, not something the staff or the board at DonorsTrust pick.
There is, however, a catch. Our board of directors can decline a grant request. When this happens, it’s to ensure that giving from all our accounts is in line both with our mission and with the liberty-based principles that attracted our clients to us in the first place. We don’t give to organizations that work to grow the size and scope of government, nor will will we support organizations that accept a significant portion of their revenue from government sources.
I have a charitable remainder trust. Could a donor-advised fund help with that?
Absolutely. Charitable remainder trusts (CRT) work very well when a donor-advised account (DAF) serves as the charitable beneficiary. By naming a DAF as the CRT remainder beneficiary, when the CRT terminates you can support all the charities you care about from your DAF account. You don’t need to decide upon charitable beneficiaries at the time the CRT is created. Instead, using a DAF as the CRT beneficiary provides an easy method of adjusting your charitable plans. It is very likely that your charitable plans will change before the CRT terminates, so why lock yourself into a distribution plan at the time the CRT is created?
While a CRT can be drafted in a manner that allows you to change the charitable beneficiaries after it is created, including this provision may create detrimental estate tax outcomes. The easiest way to create flexibility is to name a DAF as the CRT charitable beneficiary. If you go this route, the groups ultimately supported by you can be decided upon after the CRT terminates by simply contacting the DAF sponsoring organization and providing advice for distributions from the account. This process is far easier than making beneficiary changes by amending your CRT agreement, which generally will require an attorney, and possibly even a court hearing.
You can find more on charitable remainder trusts as they related to donor-advised funds here and here.
Why use DonorsTrust instead of just writing checks?
I like this question, especially because it’s often from an astute giver who knows the tax benefits of writing a check to a public charity are the same as giving to a donor-advised fund (the tax benefits of a donor-advised fund are much stronger when the alternative is giving into a private foundation).
As with anything related to your financial life, the right decision comes down to what is best for you. Here are some of the main reasons that the casual donor might use a donor-advised fund instead of simply writing checks directly to organizations:
- If you are supporting many organizations. Annually writing checks to fewer than ten organizations, and keeping track of the receipts, is relatively simple. If you are giving to many organizations, however, a donor-advised fund enables you to make a single gift into a single organization. That simplifies your life come tax time, and means you have a team on the other end to do all the work of writing the grant checks, and handling the administrative due diligence.
- If you have complex assets you wish to give. Donor-advised funds such as DonorsTrust are ready to receive appreciated stock, closely held stock, and real estate. Contributing these items offers a tax-advantaged way to fund one’s account. Not all charities are set up to take these assets, and even if they are, you can make a single transfer of these assets into a donor-advised account and then recommend direct contributions out from your fund.
- If you want to be more strategic in your giving. With a mission-driven fund such as DonorsTrust, you have advisors to turn to with questions about or recommendations of other groups that might fit your giving profile. Giving through a donor-advised account also allows you to more easily see your giving history compiled into one place. That’s helpful during your lifetime, but also helps in understanding and following your donor intent after your death.
I have a private foundation, but would it be better to have a DAF?
We had multiple people talk with us about their frustrations in managing their family foundations. Keeping up with your own foundation requires annual tax filings, disclosure of details about who is involved and what you give to, board meetings, minimum annual distributions, and other headaches.
More and more people have decided to “roll over” their foundation into a donor-advised account. Donors get to keep the benefits they enjoy – a named account, ability to thoughtfully decide where to give – while receiving more generous tax benefits (click here to see a comparison of private foundation vs. donor-advised fund tax benefits), a built-in staff to handle the back-office work, additional privacy, and more time to make charitable decisions.
The benefits of rolling a foundation into a DonorsTrust account go beyond the clerical, though. A couple of the people asking about foundation rollovers also expressed concern about how their donor intent would be carried out by the next generation. A DonorsTrust account puts guardrails around giving to ensure that future advisors of the account can’t use your charitable dollars to fund causes you oppose or simply never had an interest in.
