Donor-Advised Funds:
A Simple Tool for Family Philanthropy

A Case Study (part 2 of 2)

By Terry Green, CFP ®, AIF ® and Phil Tobin

How Does a Donor Advised Fund Work?

A Donor Advised Fund is a family foundation. One can be established and operated without the set-up fees, minimum payout requirements, excise taxes, and administrative hassles of a private foundation. Donor Advised Funds are not new; they have been part of the community foundation landscape for years. In addition, many mutual fund companies, brokerage firms, and independent charitable organizations now sponsor these programs. Because of their simplicity and flexibility, and because people of even modest means can participate, Donor Advised Funds are becoming one of the fastest-growing forms of philanthropy in America today.

Not all Donor Advised Funds programs are alike; some are more flexible and “user-friendly” than others. Here is how they typically work:

The sponsoring charity does everything else, leaving donors and their families free to concentrate on the emotional and enjoyable side of family philanthropy.

The donor’s role is that of an advisor (hence the name Donor Advised Fund). The donor cannot direct that specific action be taken, only recommend an action. This concept of advice is key to the Donor Advised Fund’s superior tax treatment by the IRS.

Why Establish a Donor Advised Fund?

Because of their simplicity and ability to integrate well with other planning strategies, Donor Advised Funds work especially well as a strategy for family philanthropy when the donor wants to:

Thanks to Donor Advised Funds, individuals now have a simple, flexible and cost-effective tool with which to practice family philanthropy.

Terry Green, CFP ®, AIF ® is an independent, fee-only financial planner with Blue Water Capital Management. He can be contacted at (858) 552-1488 or terry@sandiegofeeonly.com. Philip T. Tobin is the President of American Endowment Foundation (AEF). Their website is www.aefonline.org.

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