My SO and I have accumulated a comfortable net worth and SS, when we start collecting in a couple of years, will take care of our living expenses. This leaves quite a bit to grow until we pass. We have no kids nor family members who we wish to leave our assets to.For those of you who are donating money, have any of you started a foundation or a donor-advised fund to manage their giving after they pass away? Our current charitable giving is about $20K per year to various non-profit groups. I would like to increase that to $60-80K/yr to fund specific scholarships. I want to witness the benefits of our philanthropy - for lack of a better description. I could just give the money to an existing Foundation for them to distribute, but I want to "restrict" the scholarship to specific qualification in a specific area of the country.Seeking any thoughts, comments, discussion of pit-falls, etc. that I will encounter.Thanks in advance.
For those of you who are donating money, have any of you started a foundation or a donor-advised fund to manage their giving after they pass away?I am very much a newbie at this; DH and I established our donor-advised fund in July. It has a tiny sum of money in it at the moment, but will grow as we continue to add to it. In our case, the establishment of the fund was much assisted by the existence of a community foundation in the area we wanted to contribute to (my home county). The community foundation was set up roughly a decade ago. It has grown tremendously in that time, and is doing a lot of good work in the community these days -- from helping the poor and needy to environmental work at nature conservancies to funding for the community's museums, libraries, symphony, and playhouse. (Which are all remarkably well developed for a town of less than 50,000 people.)Among the really good things is that the community foundation's funds, overall, are large enough that they can get excellent management rates from the firm that manages their money. Far better than I would be able to get, that's for sure. They are also very knowledgeable about the not-for-profit organizations in the area, which is often an interesting conversation. Organizations that sound good are not always well-managed or effective, and vice versa. So -- if there is a community foundation in the area you are interested in, I would check them out. There should be an executive director who can provide you with information about how things work, as well as information on how their investments work.ThyPeace, whose Dad helped guide this process, because he has had a donor-advised fund for quite a while now.
Thanks ThyPeace,The community I live in has a couple of Community Funds, but none of them grant educational scholarships. I thought about a DAF, but not sure anymore. That was why I am exploring Foundations and other charitable vehicles out there (i.e. charitable remainder trusts). Or, latching onto a Scholarship Management Service.I did notice today that there appears to be an annual deduction limit with a DAF (30% max of AGI can be deducted). Our AGI is quite low, so that limits the deductibility of a DAF contribution unless I get creative with Roth Conversions. Something else to scope out.Again Thanks and glad it works for your community.Windrath
I’m sure the first step is a consultation with a estate lawyer
hi StockGoddess,You are probably right that I should contact an estate lawyer. However, I have found that the lawyers and attorneys and Financial planners seem obligated to spew the standard boilerplate information. In doing so, they don't try to figure out alternatives nor offer ideas based on what their other clients have experienced.It may sound strange, but I don't trust anyone I have to pay $200/hr+ to tell me what I already know. I would rather hear from all of the Fool readers who have real experience.Windrath
Based on the limited amount of info, I don't think either a Private Foundation ("PF") or a Donor Advised Fund ("DAF") sounds right for you. Generally, people use DAFs and PF to get a charitable deduction now and make the grants over time later. Or, they use them to set up a legacy that their family usually fulfills (and gets the emotional and social benefit of fulfilling it). Some reasons: 1. You don't have high AGI - so you don't need a charitable deduction. 2. You don't have sufficient assets to justify the expenses and hassles of a PF. 3. A DAF (or PF) is good if you need the deduction now and want to direct contributions later. Again, you don't need the deduction, and it sounds like you want to grant/award the money now (to see it in action). 4. You and your SO have no family to carry out your intent after your death. Who will manage the PF or make recommendations to the DAF after you pass? Why bother with that then? Most DAFs roll th emoney into their general fund when the family recommenders pass. 5. Importantly, scholarship grants (as opposed to grants to charitable organizations) are a "PITA" for PFs and DAFs to administer. A scholarship is a distribution to an individual and strict requirements must be followed for it to be permitted. To overly summarize, PFs must obtain IRS pre-approval of the proposed scholarship program (which likely will involve an independent majority committee). I believe the DAF must have at least a majority of independent committee members and again, you must have a procedure in place to insure the application process is fair and nondiscriminatory. Say you really like one applicant that doesn't meet the criteria - tough you can't make the grant. Meeting these requirements costs money. 6. Again, when you are gone, who is on the PF committee and DAF committees. Many DAFs will just move your money into their general fund. 7. You'll definitely need legal advice ($$) for a PF and the pre-approval. A DAF might be willing to navigate the rules for you and pick up the costs. 8. If I were a local PF I wouldn't except your restrictions. Plus, again, they aren't going to pay for a pre-approved scholarship program to make your gifts. 9. If you are thinking making "loans" to kids (even 0 interest) forget about it - exceedingly high PITA factor for PFs. Foundations aren't equipped to navigate the debtor-creditor rules. When they do do this (for big money) they usually hire an outside service provider to administer the loans(i.e., more fees). Alternatively, 1. DIY Project. Take out an ad, contact the local high school, or get creative and do a private scholarship. You control everything. Pay the school for tuition directly, and it isn't a gift. Keep it under the annual exclusion, and it isn't a gift ($15k each per year). Downside. You get no deduction and will require you to do some work. But, you will have a much higher "feel good" factor. You might work with a local group who will partner with you on this and do the work. 2. Easy Route. Contact a college(s) (University/college planned giving director) and create an endowed scholarship. The school will award the scholarship pursuant to your guidelines - in your name if you want. Much less work for you, but you will not control who receives it. Scholarships will be limited to the school you work with. You will pay no legal fees. You will get a deduction. Small schools might be more eager to work with you with this amount of money. 3. Note, gifts from you are not taxable income to student. Scholarships from a school, PF or DAF that exceed tuition and fees are income to the student. Kudos to you for your charitable intent.
Thanks Ckelly,All of your points are good. Although we do have enough assets to create a Foundation or a DAF, I agree with you about the "after-we-die" management of it.Oh - a couple of colleges (one being my alma mater) would like very much for me to gift them a seven figure amount and give me back 4%/year in return while they earn 10-12%. If you remember Wimpy and Popeye - "I will gladly pay you Tuesday for a hamburger today."I am aware of all the gifting rules as well as some of the other options (like the DIY) you suggested. My current thought is to start the Scholarship through a Scholarship Service organization like Scholarship America that handles everything. It is a bit expensive in the beginning, but, by the time, I build the fund up to $200-250K, it becomes reasonable and they make sure the IRS is happy. The rest of the money will be distributed annually or upon death to 7-8 other organizations and a couple of individuals.Windrath
If you want to go the scholarship route with a Foundation, a quality service provider is ISTS (International Scholarship & Tuition Services). https://www.applyists.com/ They help institutions administer programs, but they also help individuals or foundations. You might check them out. Someone else mentioned community foundations. They can be good and offer DAFs. Some like NY Community Trust offer component trusts where you can tailor your wishes a bit. They also offer DAFs. Another big DFA provider is National Philanthropic Trust. https://www.nptrust.org/Good luck
Thank you very much. :)
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