Harris Rolls Out a Donor-Advised Fund With National Philanthropic Trust

NPT will also manage Harris myCFO Foundation assets

Harris has launched the Harris Charitable Fund Program under the sponsorship and management of National Philanthropic Trust (NPT), a national public charity and major donor-advised fund (DAF) provider, the two organizations announced Tuesday, August 24. In addition, Harris myCFO Foundation, a public charity, has granted its assets to NPT, which will administer the granted assets under the Harris Charitable Fund Program.

The new Harris program is a private-label relationship that NPT offers to financial service firms, Andrew Hastings, NPT's vice president for external affairs, said in a joint telephone interview with Claudia Sangster, Harris Bank's director of philanthropy, estate and trust services. "We're providing the back office, the day-to-day operations, the charitable administration of the program so that Harris can focus on their core competency, which is investment management and providing their clients sound financial advice and services, of which charitable giving and DAFs are a part."

The Harris DAF can accept a wide variety of assets from donors, including cash, appreciated stock, bonds, mutual funds, restricted and closely held or non-publicly traded securities, real estate, limited partnerships, deferred gifts and other illiquid assets, Sangster said. But like any charity, it has the right to refuse a gift. According to Hastings, NPT evaluates each one on a case-by-case basis. "Often, the issue isn't so much our willingness to accept a gift," he said. "It may be the tax consequences to the donor that may stop them from making the gift because they may be exposed to capital gains tax or unrelated business income tax that may reduce the overall deductibility of the gift."

Sangster said the DAF offers donors four investment pools designed to reflect their philosophy on investment risk, reward and time horizon for grant recommendations: highly conservative, income, moderate and growth. Each account has one or more advisors who make grant recommendations. Because of the way a DAF works, donors themselves can express their grant preferences, but cannot require that donations go the charities they designate. [A donor to a DAF takes a tax write-off on the contributed assets, thereby ceding "ownership" of the assets to the DAF.]

Sangster said donors in the Harris DAF range across a wide spectrum of wealth, from those with quite modest means to ultra wealthy families. The minimum first grant recommendation is $250. She said donors set up a DAF account because the structure is straightforward and flexible, and it allows them time for thoughtful giving as opposed to rushing to write checks on the last calendar day of the year. "Our clients are looking for a simple solution or because they're too busy to operate another business-a foundation," she said.

Hastings noted that donors have 1.4 million U.S.-based charities from which to choose. "We can support any qualified charity for any qualified charitable purpose," he said.

NPT can also facilitate grants to foreign charities. Sangster said this rare capability among charitable organizations was one of NPT's chief attractions as a collaborator for Harris. She said Harris myCFO Foundation was originally set up in part to address

donors' desire to recommend direct foreign grants and require accountability from recipients regarding their use of restricted grant funds. In NPT it has found an organization fully capable of helping them do that, she said.

Hastings said such gifts most commonly go to universities abroad, many of which have U.S. "friends of" organizations. "We can use those entities as pass-throughs, so there's no additional charge to do that." But NPT's clients often want to contribute grants to institutions abroad that have no affiliation with a U.S. charitable organization. NPT received special permission from the Internal Revenue Service in 2001 to engage in this type of activity, Hastings said. To facilitate a grant to an overseas charity, NPT has to determine that the recipient foreign institution is equivalent to a U.S.-based charity. It also ensures that the dollars sent to the charitable organization are being used for a legitimate charitable purpose.

He cited the example of a West Coast owner of a large car dealership whose wife was stricken with breast cancer. The man knew that the Eastern European capital city from which he had emigrated had no breast cancer screening facility. He therefore wanted to buy equipment to establish a center in that city and name it in his wife's memory. NPT was able to set up a grant for him and to facilitate the establishment of the center and the purchase of the equipment.

Sangster and Hastings noted several recent trends in the DAF universe. One is a big interest among high-net-worth donors to reduce costs and consolidate their philanthropic activities. This is prompting many to shut down their private foundations and convert the assets into DAFs.

A desire for anonymity is also strong among DAF donors, for several reasons. Hastings said people look at their philanthropy as a very personal endeavor and want to control how they are recognized for their grant. "For many people, the last thing they need is any more recognition," he said. "The wealthy in this country already tend to be very well recognized." In addition, Sangster said, many donors want to make a large one-time gift to a charitable organization, but realize that once they do so, they will be on the "radar" of that group and subject to future solicitations. The anonymity a DAF allows is a way around that situation.

Hastings said NPT has seen a pronounced trend among donors in the 40 to 64 age range ("baby boomers" who will start hitting retirement age next year) of doing bequests, setting up estate plans and naming their DAF as a charitable beneficiary, whether of their IRA or defined benefit plan or a portion of a dollar figure for their estate. "I see that trend continuing," he said. "Setting their financial house in order and designating the DAF as a charitable beneficiary is a terrific way for them to support their favorite charitable causes well beyond their lifetime."

And DAFs have democratized philanthropy, Hastings said, much as mutual funds did for investments. "DAFs have been able to open the door to more structured philanthropy for a new generation of donors."

Read a story about rise in charitable giving from the archives of InvestmentAdvisor.com.

Michael S. Fischer (msf7@columbia.edu) is a New York-based financial writer and editor and a frequent contributor to WealthManagerWeb.com.

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