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Outsource corporate philanthropy with donor-advised fund

Charitable gifts from corporate America are growing each year, putting business owners, boards and employees on the front lines of community philanthropy.

And many companies are finding that using a corporate donor-advised fund is a simple and efficient alternative to establishing private foundations for their philanthropic interests.

Like the donor-advised funds that are popular among individuals and families, corporate DAFs provide companies with an easy and efficient way to make charitable donations.

More and more, corporations have turned to their local community foundations and other “sponsors” for help in making an impact in their communities.

A corporate DAF established with a community foundation provides organizations with the ability to outsource all or part of their corporate philanthropy program, allowing the company to focus on its business interests and the impact of its philanthropy, rather than the paperwork.

So, how do DAFs work?

Very simply, a donor-advised fund is a charitable account from which grants can be made to charitable organizations at the recommendation of a “donor adviser.”

The account or fund is established by a tax-deductible gift, which can be of many different asset types, ranging from a simple cash donation to appreciated securities or even real estate. The donor then recommends grants from the donor-advised fund to support community needs and initiatives.

In many corporate funds, the company making the gift will establish an advisory or contributions committee, and grants are made from the fund at the recommendation of this committee.

The sponsor of the fund, such as a community foundation, is responsible for the donor-advised fund administration, reporting and grant due diligence that are required by current Treasury and Internal Revenue Service rules and regulations.

Because of the simplicity of establishing the fund and making recommendations for grants, corporate DAFs are a valuable alternative to establishing private foundations. Here are some important differences:

By establishing a corporate DAF, companies automatically and immediately receive the benefit of the public-charity tax exempt status of the community foundation or other sponsor.

When establishing a private foundation, companies must apply for private foundation tax-exempt status from the IRS, which may take six months or longer.

A corporate DAF is established at a community foundation or other sponsor with a single, signed fund agreement and a minimum contribution of, for example, $5,000. Typically, there are no startup costs, and administrative fees often are 2 percent or less, depending on the fund’s complexities.

On the other hand, private foundations typically require $1 million or more to make it economical to pay the upfront legal and accounting fees and to maintain ongoing expenses associated with the entity.

The most significant advantages are found in administrative concerns. Private foundations must establish gift, grant and investment management protocols and processes. The entities also file annual reports with the IRS. These administrative requirements often require staff or consultants.

For DAFs, all administrative services, including investment management, are provided by a community foundation or another sponsor, and, importantly, annual filings for the fund are included in the sponsor’s annual reporting.

An added benefit to establishing a corporate DAF over a private foundation is privacy. A DAF can be anonymous if the organization wishes to maintain private grant-making in the community.

Or, if a donor wishes, the community foundation or other sponsor can serve as a buffer between corporations and grant-seekers. The fund’s asset size, gifts received and grants made are kept private and confidential.

On the other hand, a private foundation’s detailed tax forms are filed with data on grants issued, investment fees, trustee fees, staff salaries, etc. These returns are public records.

It is easy to see why companies small and large have turned to donor-advised funds to give back to their communities.

In the Lehigh Valley, companies ranging in size from Kressler, Wolff & Miller Insurance and Client First Financial, to very large entities such as Talen Energy and BB&T Bank (formerly National Penn Bank), have established corporate DAFs.

Bernard Story is president and CEO of the Lehigh Valley Community Foundation (www.lvcfoundation.org), based in Allentown. LVCF has been connecting people who care to causes that matter for 50 years. Contact him at bernie@lvcfoundation.org or the foundation at 610-351-5353.

To read online visit: http://www.lvb.com/article/20160418/LVB01/304149986/outsource-corporate-philanthropy-with-donoradvised-fund