Good Advice about Donor-Advised Funds | npENGAGE

Good Advice about Donor-Advised Funds

By on Feb 17, 2011

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While it seems almost impossible that a donor’s wishes would be ignored, it happened recently in Nevada.   The donor, Ray Styles, placed $2.5-million in a donor-advised fund with the Friends of Fiji (a California-based fund).  The fund administrator made gifts of $600,000 from the fund to pay its two directors.  When Mr. Styles objected and sued to recover the $2.5 million, a court rightfully ruled that he had signed away his rights to control any of the money.   Furthermore, additional gifts were made from the fund to defend Friends of Fiji in the resulting law suit.

While we may not like the outcome of this legal case, the ruling was the right one.  Through donor-advised funds, people, like Mr. Styles, give money to a community fund or other nonprofit and then are allowed to recommend where the money will go.  In some ways, this looks like a charitable checking account.  But the giftors of donor-advised arrangements get a tax deduction in the year they contribute the money to the fund and, in return, give up the right to control the money.

This example is certainly an extreme one.  In reality, donor advised funds provide wonderful flexibility for individuals, multiple generations of families, and businesses.   They are one of today’s most popular gift planning vehicles.  But donors should learn about the limitations they set as well, and they should take steps to protect themselves when making gifts with restrictions.  You can read more about donor-advised funds and why they are so popular in the Wall Street Journal article ‘Family Charities Shift Assets to Donor Funds.’

*Katherine Swank is a consultant for Target Analytics. You may reach her at katherine.swank@blackbaud.com.

ABOUT THE AUTHOR

Katherine Swank, JD, senior consultant at Target Analytics, a Blackbaud Company, helps nonprofits apply statistical analytics and donor research to their fundraising efforts with an emphasis on planned gifts. She has raised nearly $250 million for mission funding during her nonprofit development career. Katherine is a retired affiliate faculty member of Regis University’s master of Global Nonprofit Management degree program, where she taught courses on wealth and philanthropy.  Along with writing for publications like Advancing Philanthropy and Philanthropy Journal, she is also a frequent presenter for industry conferences such as NACGP, AFP, APRA, and bbcon. Having grown up in a tourist destination in Colorado, Katherine has become an avid world traveler and is exploring her way through the 1,000 places to see before you die, albeit slowly.  Connect with her on Twitter @KatherineSwank.

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