In 2019, Paula Moore and her Trust Attorney Scott Magee turned to the Long Beach Community Foundation (LBCF) to convert a private family foundation to a donor advised fund. Why you might ask? Because it just simplifies her giving.
The private family foundation was established several years earlier as a way to facilitate Paula’s family’s charitable giving intentions, involve family members in the giving process, and create a legacy. For many years it accomplished all these things. Unfortunately, after the passing of her husband the private family foundation was more than Paula wanted to continue to manage. There were annual tax filings, required annual minimum distributions, and investment oversight that all needed to be facilitated with the private family foundation. It was starting to make giving feel more like a chore and less like a pleasure.
Fortunately, Paula learned that a donor advised fund fulfills her family’s intentions and functions essentially like a private family foundation, with none of the administrative headaches and for a fraction of the cost. It essentially requires the following five steps:
- Review the private family foundation’s governing documents to determine if dissolution is allowable. If so, obtain Board approval to dissolve the foundation with the assistance of a trust attorney.
- Evaluate the private foundation’s outstanding liabilities and determine how much should be held back to cover these liabilities. (Once funds have been transferred to a donor advised fund, they cannot be transferred back to the private family foundation.)
- Create a donor advised fund at a public charity such as the Long Beach Community Foundation.
- Transfer the assets of the private family foundation to a newly created donor advised fund (holding back any amount to cover any liabilities including dissolution costs).
- File the file tax return on the private family foundation and file dissolution paperwork in the state where it was created.
Goodbye annual tax filings. As a component fund of a community foundation, all tax requirements are met by the sponsor organization, in this case, the Long Beach Community Foundation.
Minimum distributions were a thing of the past. Donor advised funds do not have minimum annual distributions. Regular charitable distributions are encouraged by LBCF so that charitable donations continue to be distributed to local nonprofits doing excellent work in our communities, but this frequency and volume is unique to each and every fund holder’s intentions.
Investment oversight has never been easier. Donor advised fund holders at LBCF can pick from one of five investment mix options based on their time horizon for granting or tolerance for market volatility. If they want more customization they can create custom allocation mixes, or even work with an outside investment manager for alternative management and more flexibility.
Legacy is still important. If Paula wants to continue to involve family members, she has the opportunity to co-advise the fund with them or name them as successor advisors upon her passing. If she would like to structure gifts to be implemented after her passing, a donor advised fund allows this flexibility also.
Although donor advised funds have become an increasingly popular alternative to a private family foundation, there are still circumstances when a private family foundation still makes sense. Generally, anyone with more than $250,000 in charitable assets should compare the two charitable giving vehicles carefully to determine the most appropriate option for their specific circumstances.
Contact us to learn more, LBCF (562) 435-9033.