Which is better for your client?
If your client has a private foundation or is thinking of starting one, we hope you will include the alternative of a Donor-Advised Fund in the discussion. It is critically important as your clients’ advisor, to discuss this with them, and then choose the best structure for your clients’ charitable contributions.
ADVANTAGES OF DONOR-ADVISED FUNDS VS. PRIVATE FOUNDATIONS
| TEXAS FOREST COUNTRY COMMUNITY FOUNDATION (TFCCF) DONOR-ADVISED FUND | PRIVATE FOUNDATION | |
| Ease of Creation | TFCCF is already a 501(c)(3). Execution of simple Fund Agreement is all that is required. | Involves creation of new organization, application for tax exempt status and expenditure of time and money. |
| Tax Benefits | Tax Payer can deduct up to 60% of adjusted gross income for cash gifts. Full market value of gifts of appreciated property is deductible up to 30% of adjusted gross income. (Consult your tax advisor concerning alternative minimum tax implications.) | Cash gift deduction is limited to 30% of the adjusted gross income. Only the cost basis of certain types of appreciated property is deductible, and deduction is limited to 20% of adjusted gross income. |
| Minimum Contribution | $25,000 | $10 million generally recommended |
| Accounting and Tax Preparation | No separate tax return to file and assets are audited as part of the Foundation’s annual audit. | Detailed reporting required |
| Excise Taxes | No Excise Tax to pay. | A 1-2% federal excise tax must be paid on net investment income. |
| Investments | No federal investment requirements and no equity concentration restrictions other than those established through prudent guidelines. | Certain types of investments prohibited and the Foundation may not own more than 20% equity interest in a business. |
| Distributions | Currently, there is no minimum pay-out requirement for a specific fund. | Approx 5% of net asset value must be paid out annually for charitable purposes. |
| Anonymity | Donor’s names are revealed only to the IRS | Names and addresses of contributors must be made available to the public. |
| Perpetuity | Carrying out the donor’s charitable intent is an important hallmark of TFCCF | Overtime, oversight will change and your wishes may be forgotten. |
The above information is not intended as legal or tax advice.
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