For some investors, charitable giving is a meaningful passion in their lives. They commit a substantial amount of their wealth to a cause close to their heart through yearly giving and often through their estate, leaving a legacy for when they are gone. Two useful tools to perpetuate a charitable legacy are family foundations and donor-advised funds (DAF). Family foundations are most often used for significant multi-generational giving. For example, the Ford Foundation has spanned eight decades!

In recent years, family foundations have benefitted from technology making the entry point and costs of operation lower. A family foundation can start with as little as $250,000 in initial funding. The one main benefit to a family foundation is that it can accept a variety of assets including, real estate, closely held stock, stock options, and insurance policies in addition to traditional assets like cash, cash equivalents, and publicly traded securities. Foundations can also use holdings in their current form rather than liquidate them. For example, if an investor’s property and the warehouse sitting on it were donated to a family foundation, the foundation could use the warehouse as a community center or base of operations.

The other main benefit is that family foundations can make grants directly to individuals, organizations outside of the United States, and provide funding to for-profit businesses that support the foundations charitable mission, in addition to traditional 501(c)(3) organizations.

Since not every investor has millions upon billions of dollars to give to their favorite charitable cause, DAFs can be established with as little as $5,000 and come with considerably less administrative paperwork. Behind DAFs is a sponsoring organization that services multiple DAFs in a community. They take care of money management, administration, and tax reporting. Contributions are limited to cash equivalents and publicly traded investments, liquidating other donated assets.

DAF donors make recommendations as to where to distribute the grants. The fund generally follows the donor’s wishes; however, grants are limited to public, non-profit organizations recognized by the IRS, houses of worship, and educational institutions.

Both DAFs and family foundations can exist in perpetuity long after the establishing donor dies. Donor-advised funds can have named successors of an individual, a charity, or a combination of both. Family foundations can be passed to countless generations of family or appoint a board of trustees.

Furthermore, both charitable vehicles provide tax benefits for donors. DAF contributions can generate up to a 60% deduction for cash and up to 30 percent for long-term appreciated property. Most assets are valued at fair market value. Family foundations provide up to a 30% deduction for cash, up to 20% for appreciated securities, and other assets valued at cost basis. Most charitable inclined investors are not in it for the tax benefits. The goal of both DAFs and family foundations is to grow the donated assets through conservative investments to provide a maximum benefit over a longer time.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial and a co-host on “Money Talks”—your trusted resource for your money, your future, your life—airing Saturdays at 10 a.m. on AM 920 The Answer. Mr. Lako is a CERTIFIED FINANCIAL PLANNER™ professional.


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