To run the charitable foundation is to have absolute control and discretion over the charity, its goals, its practices, and all the decisions regarding where the money is to go. While this can be richly rewarding, it can be exhausting. Now there is a popular alternative to a full foundation and a move to collapse back into what is known as a donor-advised fund.
If you or your family run a charitable foundation and are considering this alternative, The Wall Street Journal has a few points to consider in a recent article titled “Risks to Consider With Donor-Advised Funds.”
For starters, what is a donor-advised fund? Unlike a foundation that is run much like a business, a fund is much more like an investment vehicle run by an expert. As the name suggests, donors give to the fund and then advise it how to ultimately donate the money it takes in. T
here are some ways to more carefully form the fund so as to grant greater or lesser control. Ultimately, however, it is simply a different kind of animal than a foundation.
It also means that there are far fewer administrative burdens (especially on you as the donor), far fewer fiduciary requirements, fewer taxes, and greater privacy. The original article has a helpful chart you might peruse to understand the differences.
So what are the problems? First, to transfer from a foundation to a fund means coming to terms with the new benefits and shortcomings of the fund, and that may be a family activity. Second, the transfer will mean winding up the foundation and this ought to be done with care. State regulations can affect how to wind up the foundation, or how and when to give notice that you are doing so, so there is a bit of red tape.
Then there are the foundation assets themselves. What if some of the assets are illiquid or otherwise difficult to move? Indeed, you need to at least leave enough assets in the foundation to let it get through the expenses involved in the windup.
There are a few more issues addressed in the original article, and even more besides that may affect your particular foundation and/or assets. These are certainly issues to think about, but for many the message is also clear - there are options out there if your foundation has gotten out of hand.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Either way, how does the foundation or the donor-advised fund fit into the overall plan?
Reference: The Wall Street Journal (April 13, 2014) “Risks to Consider With Donor-Advised Funds”