From the December 2008 issue of Wealth Manager Web • Subscribe!


It may be mid-December, but there is still time for clients to establish a private charitable foundation or donor-advised fund in 2008 and receive a tax deduction for this year.

It used to be that to establish these types of charitable entities, more time was required. But now, establishing a private foundation only takes about "three days," says Page Eberstadt Snow, chief philanthropic officer at FoundationSource, ( FoundationSource does the administrative and back-office work for clients and wealth advisors who want to start a foundation, and then FoundationSource continues those duties over the life of the foundation. These days, establishing a private foundation doesn't take multi-millions of dollars, either: "Two-thirds of all private foundations are funded with less than $1 million," says Snow. In fact, a lot of clients start a foundation with $250,000 to "road test" whether a foundation is the right route for them to take: "Do I like it? Is it engaging the family?"

For other clients, establishing a donor-advised fund (DAF) may be the way to go. Because the mechanics of making grants from a DAF or a foundation are Web-based, it's very easy to take care of the actual granting to charities once the foundation or DAF is funded. Kim Wright-Violich, president of Schwab Charitable, says DAFs can be established with as little as $5,000 at Schwab Charitable. At this time of year, grandparents often will establish a DAF for younger grandchildren, funding it with a small amount of money that they can then work with together, deciding where the grants should go, Wright-Violich adds. This teaches the grandchildren the importance of philanthropy and helps establish the charitable mandate for the family. On the other hand, she says, many DAFS are funded with tens- or hundreds-of-millions of dollars.

One common misconception about DAFs is that the person who funds the DAF doesn't get to have the final word on where the grants actually go. That's not so, Wright-Violich says. One of the things that Schwab Charitable does is vet the charities to make sure they are legitimate, that they are not a scam and that the officers don't have some kind of pending legal issue, which is helpful for the client. But unless there is an issue like that, the grant will go to the designated charity recommended by the client.

So if clients have a choice now between a private foundation and a DAF, which one is right? Often, says Sean Stannard-Stockton, principal and director of tactical philanthropy at Ensemble Capital Management, clients will establish both a private foundation and a DAF in order to take advantage of the different strengths of the two entities.

One of the most important criteria is that there can be a difference between the tax treatment for the initial funding for a DAF and for a foundation--says Wright-Violich--so it's important the get an accountant involved at that initial stage. After that, it's not size of the initial funding that matters most; it's how the client wishes to be involved, and whether she wants the grants to be public record (as they would be from a foundation which must file where grants are going) or anonymous--as they can be, although they don't have to be--with a DAF.

How involved does the client want family members to be? Is it important for the family to have a Smith Family Foundation? In addition, family members can have paying jobs running a family's private foundation. They can be involved at a DAF but it's not a full-time job.

The bottom line is, there are many good reasons to establish a DAF or private foundation--and it's not too late to do that for this year.

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