You have decided to set up an endowment for your favorite charity or as a memorial to a loved one. You would like to leave a legacy so that your gift keeps on giving. The principal would stay invested and the income would be used for the charitable cause indefinitely.
A number of years ago, you had limited options. You hired an attorney to set up a family foundation as a charitable trust or non-profit corporation. Then the attorney or an accountant would file an application for tax exemption under Section 501(c)(3) of the Internal Revenue Code. You had to find volunteers or hire someone to manage the organization. You then had to file annual returns with the IRS.
The legal and filing fees to set up the organization and get tax exemption is $5,000 to $10,000, unless you are lucky enough to find an attorney and maybe an accountant to donate his or her time. Your cost each year for the annual return is $500 to $1,000. And even more for the annual administration costs of the organization.
This may make sense for larger funds, say $½ million or more. But for smaller funds, it may not make sense when the organizational costs eat up a significant portion of the funds and the annual
fees use up much of the income.
You have more economical options available today. One option is to set up a donor advised fund at your local community foundation. With a donor advised fund, although the community foundation legally is in control, you as donor and your loved ones participate in the research, selection, and awarding of the funds to charitable causes. You and your loved ones do not have to worry about the day-to-day management of the assets and financial reporting.
In Port Huron, the Community Foundation of St. Clair County offers donor advised funds for endowments as small as $25,000. You do not need to make entire $25,000 gift at once. You can take up to five years and the gift can be appreciated property, cash, stocks, even real estate (subject to acceptance).
The Community Foundation of St. Clair County does not charge a fee for the establishment of a donor advised fund. The only charges are the annual management fee of 1.5% of the principal balance of the fund. This fee is consistent with what professional trustees charge. For more information, check out the Foundation’s website at http://www.stclairfoundation.org/donor_advised_funds.
If you do not want to use your local community foundation, check with your financial advisor. His or her broker-dealer may also administer donor advised funds at minimal costs.
With donor advised funds, you can still effectively direct the distributions for charitable causes without all the hassles of the management and investment of the funds. With donor advised funds, you can leave a legacy and a make a difference in the lives that follow.
By: Matthew M. Wallace, CPA, JD
Published edited January-February, 2015 in Savvy magazine as: There are many charitable gift options