Converting a private foundation to a donor advised fund: one family’s story
While the foundation has been an outlet for family members to get firsthand philanthropic experience, the liabilities of a private foundation also became a source of “tension” for the family.
For Richard, giving is about more than bank accounts and dollar signs.
“Writing a check is shallow to me, unless you can provide other involvement and engagement with that giving,” he says. “We like to be involved in organizations. We want some physical and emotional tiebacks to them.”
Richard’s family was participating in charitable work in medical clinics in economically developing nations when the idea for his family foundation came about. He established a private foundation with the goals of teaching his children about giving, creating a sustainable entity for the future generations of his family to maintain, and engaging his family in hands-on philanthropy.
Since its inception, Richard’s family foundation has supported organizations and causes that provide ways for the family to become personally involved and support organizations that are religious in nature.
While the foundation has been an outlet for family members to get firsthand philanthropic experience, the liabilities of a private foundation also became a source of “tension” for the family. The hefty responsibility of establishing and managing the foundation was stressful - Richard was concerned about the potentially lengthy and costly process of establishing a 501(c)3 organization on his own and ensuring that his foundation correctly conformed with IRS requirements.
“We set up a foundation and it was just cumbersome,” Richard says. “It was also expensive — there were accounting fees and other fees required to be able to give.”
Richard began to consider other options for the foundation. Through his research he discovered Central Carolina Community Foundation and the opportunity to convert his private foundation into a much easier to manage donor advised fund.
The process of converting his foundation was simple. Richard and community foundation staff prepared an agreement that specified his wishes for disbursements and investments of assets of his new fund housed at the Community Foundation. This agreement was approved by Richard’s family foundation board and the assets were transferred from Richard’s private foundation to the new fund at the Community Foundation. The last step required was to file one final tax return for Richard’s family foundation.
Today, Richard’s family has a Donor Advised Fund at Central Carolina Community Foundation. The Community Foundation is responsible for investing and administering the fund – eliminating the stress of managing a private foundation. Richard’s family is now free to focus on philanthropy. They are able to identify organizations and causes they wish to support and engage with at a much lower cost.
Since converting his private foundation to a donor advised fund at the Community Foundation, Richard and his family have been impressed with the benefits. The private foundation minimum 5% payout and the 1%-2% excise tax is no longer applicable to Richard’s family foundation and a professional staff is available to assist with identifying and assessing potential grant opportunities.
“A friend told me he used a community foundation and said that there must be one in the Columbia area,” Richard says. “Once I met with the [Community Foundation] staff I saw the advantages — I feel like I have a team working for me now, and the cost [of the donor advised fund] is offset by the success of the investments.
After working with the Foundation for the past five years Richard says, “With CCCF I have no concerns and know there is an outside board overseeing the organization,” he says. “I believe that small community groups or mission organizations would greatly benefit from affiliation with [the Community Foundation].”
Written By Rachel Pittman