Philanthropic structures to help you achieve greater impact
with your charitable dollars
As Aristotle observed 2400 years ago, giving money away is an easy matter, but deciding to whom to give it, how much to give and when to give it is neither in every person’s power nor an easy matter. It has not become easier over the millennia, but now there are philanthropic tools which give us the time, space and privacy to research, reflect, strategize and plan before committing funds irrevocably to any given cause. You can set up a private foundation or a donor advised fund (DAF), receive a tax receipt at the time you make a donation, and then deliberate on how your gift will be disbursed over time. Either option offers long-term flexibility and the ability to have multiple beneficiaries who receive gifts of varying sizes.
Full Engagement with a Private Foundation
Deciding between a private foundation and a donor advised fund involves thinking through several issues. If you have earmarked substantial assets for charitable giving – expert opinion varies, but the minimum range cited is usually $1 million to $5 million – and want to take a very hands-on approach to your philanthropic work, a private foundation is a viable option. A foundation allows you to set a strategic course for your philanthropy and establish benchmarks for measuring success; the ability to make grants allows you to set parameters for your giving and set up an application process where you can review and compare requests for funding.
This approach might be particularly attractive if you wish to engage the next generation of your family in your philanthropic project in order to maintain strong family ties, teach money management skills and transfer family values. Running a private foundation might also represent a second career opportunity for someone who is retired and wishes to contribute their business skills and acumen, as well as their wealth, to making a difference in the world around them.
With a private foundation, you have complete control over every aspect of your philanthropy, but this comes at a price, both in terms of cost, time and effort. It is your responsibility to:
- put governance structures in place (a board comprising over 50% of non-arms length directors, i.e., family members, and regular board meetings)
- secure funding (as a charitable organization, you may bolster your own resources by accepting charitable gifts from others)
- create the asset management strategy and make investment decisions (or hire investment professionals)
- make legal and accounting arrangements
- determine which charities will be the recipients of your gifts and make disbursements (3.5% of the assets must be paid out every year, even in difficult markets, which may involve cutting into your principal)
- prepare reports and evaluate the effectiveness of your philanthropic strategy.
However, this hands-on approach ensures that your philanthropy reflects your interests, with the ability to adapt to emerging opportunities or evolving ideas.
A Cost-Effective Alternative to Creating a Private Foundation
For those without the resources – time or material – to establish and administer a private foundation, a donor advised fund (DAF) offers many of the advantages of a private foundation. It is a more cost-effective and less cumbersome approach for those who want to take a proactive, structured approach to their philanthropy – as opposed to reacting to various ‘asks’ by writing cheques directly to charitable organizations.
A donor advised fund is a segregated fund within a public foundation, which makes charitable gifts or grants to another charitable organization. Within a DAF, your assets are pooled with those of other individuals, families or corporations for cost-sharing purposes; however, you ‘recommend’ charities to be the beneficiaries of your gift(s). Once you make the initial contribution to the fund, the foundation takes care of the administrative work. Until recently DAFs were the purview of community foundations, which tend to focus on the needs of the immediate community or a specific range of interests. Now many financial institutions also offer this option, often with more freedom to choose recipient (registered) charities from across a broader range of activities.
Whereas setting up a private foundation involves considerable time (often six months to a year) and legal expenses, DAFs can be established within 24 hours. The minimum initial contribution to set up a DAF is usually between $10,000 - $25,000 with a community foundation, and $10,000 - $250,000 at a financial institution, with private client options for larger accounts. Investments are managed by the fund’s portfolio manager.
As with a private foundation, you can establish a donor advised fund in a family member’s name or that of a corporation. You can also involve family members in researching and recommending charitable organizations as beneficiaries. You can build as much structure into your private arrangements as you wish, through regular family meetings, and still accomplish many of the same goals as families with a private foundation.
Daryn Form is a Senior Financial Advisor with Assante Capital Management Ltd. providing wealth management services to principals of family-owned and privately held companies. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and is registered with the Investment Industry Regulatory Organization of Canada. The information mentioned in this article is for general information only. Please contact him to discuss your particular circumstances prior to acting on the information above. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Rates are not guaranteed and are subject to change at any time without notice.