Donor Advised Funds

FAQ: Donor-Advised Fund

council-webteam — Mon, 02 Jun 2014 19:43:49 +0000

FAQ: Donor-Advised Fund council-webteam Mon, 06/02/2014 - 15:43

FAQ: Donor-Advised Fund

The Pension Protection Act of 2006 includes the first comprehensive regulation of donor-advised funds. These requirements generally took effect at the beginning of the tax year following enactment of the Act, for charities that hold assets in such funds. However, a provision barring the payment from donor-advised funds of grants, compensation, and similar payments to donors, advisors, and persons related to them took effect immediately on August 17, 2006. Understanding the definition of a donor-advised fund also is important to the implementation of the Act’s charitable IRA rollover provision because rollovers are not permitted into donor-advised funds.

What is a donor-advised fund?
A fund must possess three characteristics to be a donor-advised fund:

It must be separately identified with reference to the contribution of a donor or donors
It must be owned and controlled by a sponsoring organization
The donor or a person appointed by the donor must have, or must reasonably expect to have, the privilege of providing advice with respect to the fund’s investments or distributions

If any one of these characteristics is absent, the fund is not a donor-advised fund.

What does it mean for a fund to be separately identified with reference to the contribution of a donor or donors?
Examples of separate identification include naming the fund after a donor or persons related to the donor or tracking contributions to the fund with respect to the specific donor or donors on the organization’s books.

Are funds for a single designated organization or a single governmental entity donor-advised?
No. These funds are exempted by the legislation even if a donor provides advice with respect to investments or distributions. This exemption covers both designated funds and agency endowments.

Are field-of-interest funds donor-advised?
Funds that attract contributions from several donors are not donor-advised as long as the fund is not tracked with reference to the gift of any particular donor. This remains the case even if the fund is advised by an advisory committee that includes some donors to the fund.

Is any fund with a specific charitable purpose a field-of-interest fund?
No. A fund that is tracked by the gift of a particular donor is a donor-advised fund if the donor reasonably expects to provide advice about the fund’s investments or distributions, even if the fund agreement restricts grants to a particular purpose, such as supporting the arts or improving the environment.

I have a donor who would like to create a restricted fund to protect the environment. Apart from specifying the fund’s purpose in the gift agreement, the donor will not provide advice about the fund’s investments or distributions nor will she appoint anyone else to do so. Does specifying the fund’s purpose make it a donor-advised fund?
No. Even though the fund will be tracked by reference to the donor’s gift, the legislative history clearly differentiates between advisory privileges and legal obligations. Legal restrictions, such as a designated purpose, are not advice and will not make the fund a donor-advised fund.

A donor would like to create a fund, to be named for the donor, to benefit arts organizations. The donor would like to recommend three individuals with expertise in the arts to serve as an advisory committee to the fund. Is this a donor-advised fund?
No. As long as the donor only recommends the individuals, and they are persons with expertise that can be documented, the donor will not be considered to have designated or appointed them. Therefore, the fund is not donor-advised.

Are funds, such as those for giving circles or Social Venture Partners, which are established by groups of unrelated donors, donor-advised funds?
No. As in the case of field-of-interest funds, these funds pool the contributions of several unrelated donors, the funds are not tracked by reference to the gift of any individual member of the group, and grant recommendations are a group decision. These funds are not donor-advised.

Memorial funds usually have many donors. Are they donor-advised?
A memorial fund generally is a separate fund tracked by reference to the decedent. Although the decedent is not a donor, the legislative history makes clear that contributions by related persons, such as the decedent’s spouse or a child, can constitute a fund that is separately identified by the contribution or a donor or donors. If the fund is one for which family members of the decedent will provide advice, the fund should be treated as a donor-advised fund even though it has multiple contributors unless it is otherwise exempt because it is, for example, an exempt scholarship fund or a fund designated for a single charitable organization.

Are scholarship funds donor-advised if a donor is a member of the selection committee?
A scholarship fund is not a donor-advised fund, even if a donor or fund advisor is a member of the selection committee, if it meets the following tests:

The sponsoring organization appoints all of the members of the committee and the donor’s advice is given solely as a member of the committee;
The donor, and parties related to the donor, do not control the committee directly or indirectly; and
All grants are awarded on an objective and nondiscriminatory bases using a procedure that has been approved in advance by the board of directors of the sponsoring organization and the procedure is designed to ensure that all such grants meet the requirements of paragraphs (1), (2), or (3) of section 4945.

What are the requirements of paragraphs (1), (2), or (3) of section 4945?
Grants to individuals for travel, study, or similar purposes must fit into one of three categories:

Paragraph (1) allows grants that are qualified scholarships and fellowships. These are scholarships that pay for tuition, books, room, and board, and so forth.
Paragraph (2) sanctions grants that are prizes or awards. The recipient must be chosen from the general public, without any action to enter a contest or proceeding, and must not be required to provide services as a consequence of receiving the award.
Paragraph (3) permits grants to achieve a specific objective, produce a report or other similar product, or improve or enhance a literary, artistic, musical, scientific, testing or other similar capacity, skill, or talent of the grantee. This is the broadest category and covers, for example, awards to artists to create works of art and scholarships that do not fit under paragraph (1).

Can the donor recommend the other members of a scholarship selection committee?
Yes, as long as it is clear that the recommendation is based on objective criteria related to the expertise of the person recommended. As an example, the legislative history states that if a donor recommends the heads of the science departments at local secondary schools to be on a committee to award grants for the advancement of science at those schools, the persons so recommended will not be considered to be designated or appointed by the donor.

Learn more about Scholarship Funds and PPA Compliance.

The donor’s attorney is among those she has recommended for the selection committee. May the community foundation appoint the attorney?
Yes, the attorney can be a member of the selection committee, but the attorney must be considered to be appointed or designated by the donor in determining whether the donor and parties related to her control the committee.

Are funds that provide disaster relief or emergency hardship grants to individuals donor advised?
They are not donor-advised if the donor does not sit on or designate the members of the advisory committee. We believe funds that provide assistance to employees of a particular employer and that are advised by employee committees should be exempt from the donor-advised rules, but the Treasury Department has not issued any guidance and the Secretary of the Treasury has not yet exempted such funds.

Disclaimer: The information provided here is based on our continuing analysis of the law. Every effort has been made to ensure accuracy of this information. Please understand, however, that due to the complexity of the law and the fact that many of these provisions introduce issues that are new to the Internal Revenue Code, this information is subject to change. This information is not a substitute for expert legal, tax, or other professional advice and we strongly encourage grantmakers and donors to work with their counsel to determine the impact of this legislation on their particular situations. This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.

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Engaging Donor Advised Funds in Impact Investing

council-webteam — Sat, 16 Nov 2013 22:45:23 +0000

Engaging Donor Advised Funds in Impact Investing council-webteam Sat, 11/16/2013 - 17:45

Engaging Donor Advised Funds in Impact Investing

A Toolkit for Community Foundations

“Impact investing” is the practice of investing for social and environmental impact while generating financial return. For community foundations, impact investing represents a new, complementary tool for achieving community change. Community foundations are poised to take advantage of this practice being increasingly embraced by a variety of investors leveraging their unique role in community.

We are pleased to share a practical toolkit for community foundations looking to engage their donors in an impact investment program. Developed by Imprint Capital in partnership with The Greater Cincinnati Foundation, the toolkit outlines the entire process—from feasibility through implementation—to help a community foundation incorporate donor-advised funds (DAF) into their programs. Thanks to a generous grant from The Rockefeller Foundation, Imprint was able to test the concept with four community foundations fom 2010 to 2012 and identify multiple approaches to operating a DAF impact investment program.

"Engaging Donor Advised Funds in Impact Investing: A Toolkit for Community Foundations" includes an overview of a DAF program, frequently asked questions, an impact investment policy statement, a donor engagement kit that includes marketing and presentation materials, webinar presentations, and general resources on impact investing.

Toolkit

Webinar Presentation: Models and How to Get Started (.pdf)
Webinar Presentation: Assessing Feasibility (.pdf)
Webinar Presentation: Including Donor-Advised Funds in Impact Investing
- Slide Deck (.pdf)
- Recording
Sample Community Foundation Impact Investment Policy (.doc)
Sample Impact Sector Tear Sheet (.doc)
Sample Impact Investment Opportunity Description (.doc)
Sample Impact Investment Descriptions (.doc)
Sample Impact Investing Team Qualifications (.doc)

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Donor-Advised Fund Flowchart

council-webteam — Mon, 11 Nov 2013 21:13:17 +0000

Donor-Advised Fund Flowchart council-webteam Mon, 11/11/2013 - 16:13

Donor-Advised Fund Flowchart

This handy flowchart can help you determine which funds should be classified as donor-advised under the Pension Protection Act of 2006. Remember, a fund is only a donor-advised fund if:

A donor or person appointed or designated by the donor has, or reasonably expects to have, advisory privileges with respect to distributions or investments;
The fund is separately identified by reference to contributions of donor(s); and
The fund does not fall within an exception established by the Act.

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Donor Advised Fund Flowchart

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Considerations for Working With 501(c)(3) NIL Collectives

MatthewCain — Mon, 03 Jun 2024 15:42:25 +0000

Considerations for Working With 501(c)(3) NIL Collectives MatthewCain Mon, 06/03/2024 - 11:42

Considerations for Working With 501(c)(3) NIL Collectives

More than 120 “NIL collectives” have been established in the U.S., many of them as tax-exempt 501(c)(3) nonprofit organizations, to raise funds and enter into agreements that compensate student-athletes at specific higher-education institutions in exchange for using the student-athlete's name, image, or likeness. "Considerations for Working With 501(c)(3) NIL Collectives" will focus on these NIL collectives that are organized as section 501(c)(3) operations and the ability of charitable organizations, including sponsoring organizations of donor advised funds (DAFs), to support them.

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Do More than Grow: Realizing the Potential of Community Foundation Donor-Advised Funds

david.rosado@cof.org — Mon, 28 Aug 2023 18:14:02 +0000

Do More than Grow: Realizing the Potential of Community Foundation Donor-Advised Funds david.rosado@cof.org Mon, 08/28/2023 - 14:14

Do More than Grow: Realizing the Potential of Community Foundation Donor-Advised Funds

Donor-Advised Funds (DAFs) have been a growth engine for community foundations since the 1990s but the aspiration today is for DAFs to do more. In Do More than Grow: Realizing the Potential of Community Foundation Donor-Advised Funds, new data and analysis of donor behavior reveals the significant untapped strategic value in community foundation DAFs.

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The PayPal Charitable Giving Fund Settlement and Variance Power

brian.kastner@cof.org — Tue, 04 Feb 2020 16:59:57 +0000

The PayPal Charitable Giving Fund Settlement and Variance Power brian.kastner@… Tue, 02/04/2020 - 11:59

The PayPal Charitable Giving Fund Settlement and Variance Power

Why Disclosure Matters

A multi-state settlement agreement between PayPal Charitable Giving Fund (PPGF) and almost two-dozen states was announced to address issues of transparency and PPGF’s website disclosures. One notable area about which state regulators raised concerns was disclosure by PPGF of the fact that PPGF could exercise its “variance power.

Variance power is a common topic of conversation at the Council and community foundations often ask how explicitly variance power must be disclosed to donors. Per the settlement agreement, PPGF must modify its disclosures to ensure that donors:

know they are donating to PPGF and not directly to the eventual charitable recipient;
the fees associated with use of the platform;
the length of time it may take for a gift to reach its eventual charitable recipient; and
that PPGF has the ability to redirect gifts to other charitable recipients using its variance power (and PPGF must inform donors when this happens).

The settlement also requires disclosure regarding the advantages of being a PayPal enrolled charity compared with a nonenrolled charity.

While the settlement agreement only applies to this specific case, the issues highlight state regulators’ concern about transparency and disclosure to donors by charities that sponsor donor advised funds. The National Standards for U.S. Communities Foundations™ program has long required disclosure of a community foundation’s variance power to its donors, whether that be in a fund agreement or in separate policies or guidelines.

A helpful article with more information on the settlement agreement can be found at https://www.perlmanandperlman.com/paypal-giving-fund-enters-multi-state-settlement-ensure-transparency-donors/.

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Sample Fund Activity Policy

michelle.tucker@cof.org — Fri, 15 Feb 2019 19:18:39 +0000

Sample Fund Activity Policy michelle.tucke… Fri, 02/15/2019 - 14:18

Sample Fund Activity Policy

This sample fund activity policy provides language that you can either use in a stand-alone policy or incorporate into an existing donor-advised fund agreement or policy.

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D1.3 DAF Activity Policy - Template NEW.docx

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Sample Donor-Advised Fund Policies

michelle.tucker@cof.org — Wed, 13 Feb 2019 18:52:36 +0000

Sample Donor-Advised Fund Policies michelle.tucke… Wed, 02/13/2019 - 13:52

Sample Donor-Advised Fund Policies

Editable donor-advised fund policies including grant restrictions, grant recommendations, fund advisors, and more.

This sample document is being provided for informational purposes and is not to be shared without the permission of the Council on Foundations. Use of the sample document does not create an attorney-client relationship, and the information provided is not a substitute for expert legal, tax, or other professional advice tailored to your specific circumstances. The information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.

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Sample Donor Advised Fund Policies

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Sample Donor-Advised Fund Agreement

michelle.tucker@cof.org — Wed, 13 Feb 2019 18:48:34 +0000

Sample Donor-Advised Fund Agreement michelle.tucke… Wed, 02/13/2019 - 13:48

Sample Donor-Advised Fund Agreement

Editable agreement for donor-advised funds.

This sample document is being provided for informational purposes and is not to be shared without the permission of the Council on Foundations. Use of the sample document does not create an attorney-client relationship, and the information provided is not a substitute for expert legal, tax or other professional advice tailored to your specific circumstances. The information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.

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Sample Donor Advised Fund Agreement

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Community Foundation Business Model Disruption in the 21st Century

council-webteam — Fri, 10 Feb 2017 18:59:35 +0000

Community Foundation Business Model Disruption in the 21st Century council-webteam Fri, 02/10/2017 - 13:59

Community Foundation Business Model Disruption in the 21st Century

With the pace of change in our world, disruption is a natural state in communities everywhere. Change is the new normal. So how do community foundations, institutions of long-standing tradition that are influential in how communities address change, adapt themselves to the new normal? Competitive advantage flows to the organizations that see and act on those shifts first. Most community foundations are concerned that they will fall behind.

Kevin Murphy, President and CEO of the Berks County Community Foundation and the Council on Foundations’ first Foundation Leader in Residence, explores such disruptions to the community foundation business model, the rationale of asset growth, how changes in the local financial services field may force some fundamental changes on community foundations, and more in Community Foundation Business Model Disruption in the 21st Century.