Donor Advised Funds are public charities, or subsidiaries of public charities, that give donors the ability to make a large gift to the charity and then “advise” without the legal right to direct how and when to make (later) specific charitable requests.
In recent years, Donor Advised Funds have become popular for several reasons:
As a Donor Advised Fund is treated as a Public Charity for purposes of income-tax deduction limitations, it can offer some benefits for Donors who want to give more than 30% of their income to charity each year or to donate appreciated property or other publicly traded stock.
Donor Advised Funds spare Donors some paperwork, because the Funds handle the compliance work. But with professional foundation management, Donors to Private Foundations are also spared paperwork. For charitable commitments of $500,000 or greater, the Donor can have all of the benefits of a Private Foundation and none of the headaches for about the same cost.
In spite of, or perhaps because of these benefits, some Donors are confused about what a Donor Advised Fund actually is.
Some Donor Advised Funds encourage this confusion by calling a Donor’s account, a “Foundation”. A Donor Advised Fund is itself a charity. When you give money to a Donor Advised Fund you are giving away your money – irrevocably. The charity that receives it – – The Donor Advised Fund – – then owns the money.
A Private Foundation in contrast gives the Donor full legal control over the money.
While most Donor Advised Funds, follow the Donor’s advice most of the time, this could certainly change.
Many people have put money into a Donor Advised Fund and found that the sponsors make it difficult to distribute money to unpopular causes, or causes that they themselves have not deemed to be important.