Supporting Organizations

In determining how to make major gifts, a trend among donors is to exercise greater influence or control. And there is a growing desire to involve family in the stewardship responsibilities for distribution of those funds. Thus, individuals with large estates––who presumably will make most of the larger charitable gifts and who desire to be more involved with their gifted funds––need to examine the alternatives. Three frequently used options are:

• Donor Advised Funds
• Supporting Organizations
• Private Foundations

Donor Advised Funds

Many ministries, charities, and even large financial institutions now offer Donor Advised Funds.

A donor who transfers complete control of the funding assets to a ministry creates a Donor Advised Fund. The donor, and possibly his or her family, advises the ministry on the distributions to be made from the fund. The donor benefits from the current charitable deduction, the favorable impacts on estate and gift tax, and the low-cost administration and grant-making expertise of the ministry. A Donor Advised Fund can be established for $10,000 to $100,000 or more.

Supporting Organizations

It is also possible to create a subsidiary of a ministry that is entitled to the same charitable deduction and gift and estate tax benefits realized with a Donor Advised Fund. This organization is “controlled by” or “operated for the benefit of” the ministry. Through their service on the Board of Directors, the donor and family members have a stronger influence. A Supporting Organization is more expensive to operate but can be economically administered if the founding gift is $1-5 million or more.

Private Foundations

For many donors with large estates, Private Foundations are ways to create long-lasting legacies for their values. However, this option carries with it full responsibility for providing all expertise needed for investment, grant making, and administration.

When a donor contemplates creating a Private Foundation, several issues must be understood. Perhaps the greatest myth is that the donor’s children can receive large salaries from the foundation. Self-dealing rules make it difficult to benefit family. Where professional members of the family qualify to provide services, compensation must be reasonable.

Private Foundations are subject to minimum distribution requirements, excess business holding requirements, and expenditure responsibility. Compliance with these requirements can require a considerable amount of time, effort, and expense.

Private Foundation formation with $20 million or higher makes the most economic sense.

For further information and assistance, please contact Steve Hoffman of our Gift and Estate Design services.

Phone: 1-800-436-4488
Email: shoffman@gemission.com

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