PFs, SOs & DAFs, oh my!!!
Christy Butler Eckoff, J.D., LL.M, CAP, CFRE
Director of Gift Planning
Our Mission
The Community Foundation for Greater
Atlanta strengthens our region by providing
quality services to donors and innovative
leadership on community issues.
What is a Community
Foundation?
A community foundation is a tax-exempt, nonprofit,
autonomous, nonsectarian philanthropic institution
supported by the public with the long-term goals of:
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Building permanent, component funds established
by many separate donors to carry out their
charitable interests;
Supporting the broad-based charitable interests
and benefitting the residents of a defined
geographic area, typically no larger than a state;
Serving in leadership roles on important community
issues.
Who We Are
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We connect the passions of donors with the
purposes of nonprofits
Nonprofit, 2nd largest foundation in Georgia
18th largest community foundation in the
United States
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66 years old
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Serve 23-county Atlanta region
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50 members of the team
How We Work
DonorAdvised
Funds
Scholarships
Planned Gifts
Designated
Funds
Supporting
Organizations
Field of
Interest
Funds
2016 Scope and Scale
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Current Assets: $955 million
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Donor contributions: $135 million
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Grants awarded to nonprofits:
$125 million
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7,300 grants to 2,400 nonprofits
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950 donor funds under management
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Since 1951: Granted $1.5 billion
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Top areas – Arts, Education, Well-being
Our Work with
Professional Advisors
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Individually Managed Funds
A charitable resource to you and your
clients
Balser Philanthropic Advisor Council
Philanthropic Advisor Leadership
Institute
Balser Symposium
Planned Giving Design Center
Special Events
2014 contributions - $358 billion by source in billions of
dollars – all figures are rounded – Giving USA
2014 Giving – Giving USA by type of recipient
organization (in billions of dollars – all figures are rounded)
Charitable Giving in the US
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Average household contribution in 2015
was $2,974
Atlanta – 4th most charitable city in US
Philanthropic Vehicles
 Cash
 Check
 Donor
Advised Funds
 Supporting
 Private
Organizations
Foundations
What are you looking
for?
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Convenience
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Control
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Investment opportunity
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Impact
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Family involvement
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Maximize deduction
Comparisons
Comparisons
What is a Private Foundation?
Defined by what it is not-
• It is a charity that is NOT a public charity defined
by Section 501(c)(3)
• Not a Supporting Organization
• It is a not for profit entity
• Can be controlled by a person, family or business
What is a Private Foundation?
• It is organized exclusively for charitable,
educational, religious, scientific and literary
purposes under Section 501 (c) (3) of the IRS
Code.
• Must be officially recognized by the IRS in order
for contributions to be tax- deductible.
• Own Legal entity & all those rights and
responsibilities
What is a Private
Foundation?
• Usually derives it’s principal fund from a single
source as individual, family or corporation, & is
more often than not a grant maker
• Does not solicit funds from the general public
• Just because it says foundation does not mean it
is a private foundation (have to look for a Form
990-PF)
What is involved in starting a
Private Foundation?
Form a 501(c)(3) corporation
Seek exempt status
Create a board of directors
Create bylaws
Hold an organizational meeting
Hold annual meetings
Manage the “business”
• audit, tax, payroll, accounting and
finance, legal
• Due diligence on all grant-making
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Type of Private Foundations
Private
Distributes funds to its own active
Operating programs that exist for charitable
Foundation purposes
Private Non- Distributes funds to other charitable
Operating organizations do not directly perform
Foundation any charitable services or programs
Why have a Private Foundation?
• Cache -Personal recognition
• Control – over donor’s charitable program – can pay
grants for charitable purposes that are not tax
exempt
• Make grants to individuals
• Can hire family members as paid officers and
trustee as long as reasonable compensation
• Free to invest as you want (prudent)
• Can last forever or limited time
• Income tax deduction
• International grantmaking – requires extreme due
diligence
Why NOT to have a Private
Foundation?
• Want anonymity
• Do not want the administrative and legal
responsibilities
• Due diligence requirements
• Want to change focus of grant making
• Can’t spend out required disbursements
• Excess business holdings restrictions – excise
tax – self-dealing
• Minimum 5% payout of assets – excise tax
• Self-dealing restrictions – disqualified people
Disqualified People
• Foundation manager
• Donors
• Owners of more than 20% of a corporation, trust
or partnership that is a substantial contributor
• Any Family member of spouse of above
• Any entity that a disqualified person has a more
than 35% interest
• Can’t engage in a sale, exchange, leasing of
property, lend money or credit
• Can only be paid for services provided and
expenses incurred in carrying out the exempt
purpose of the private foundation
What is a Supporting
Organization?
• A public Charity established under 26 USCA 509
(a)(3)
• Either makes grants to, or performs the operations
of, a public charity- like a private charity
• Donations to a supporting organization garner the
same deduction treatment as donations to a public
charity- unlike a private foundation
3 Basic Requirements of
Supporting Organizations (SO)
SO must be organized and operated
exclusively for the benefit of, to
perform the functions of, or to carry out
the purposes of, one or more public
charities described in section 509(a)(1)
or section 509(a)(2)
3 Basic Requirements of
Supporting Organizations (SO)
SO’s relationship with it’s supported
organization must fall within one of three
categories:
– Type 1 - operated, supervised, or
controlled by; or
– Type 2 - supervised or controlled in
connection with; or
– Type 3 - operated in conjunction with the
supported public charity
3 Basic Requirements of
Supporting Organizations
(SO)
SO may not be controlled by disqualified
persons (other than foundation managers or
public charities)
• They operate as separate charities with
their own charters, bylaws, and boards.
Supporting Organizations (SO)
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Generally, to qualify as a public charity, an exempt
organization must receive at least one-third of its
financial support from a broad spectrum of
donors.
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A supporting organization does not have to meet
this "public support test" because a supporting
organization qualifies as a public charity due to its
close structural and financial relationship with
another nonprofit organization that is itself a
public charity.
Type I SO
• Are operated, supervised, or controlled by the supported organization (a
parent-subsidiary relationship), where the public charity appoints at least a
majority of the supporting organization’s board of directors.
Type II SO
• Are usually designed with a majority of directors serving on both the
supporting organization’s and the supported organization’s boards (brothersister relationship).
Type III SO
• Are the least structured relationship between the two organizations.
Typically, the supported organization appoints one or more directors of the
supporting organization and institutes other procedures to ensure the
responsiveness of the supporting organization to the supported
organization
Supporting Organizations
• Because of provisions contained in the Pension Protection Act
of 2006, there is a misperception that foundations can no
longer make grants to supporting organizations. In reality,
most supporting organizations can still receive grants.
• Type III supporting organizations (the least structured
relationship between supported and supporting organizations)
cannot receive grants unless they are "functionally
integrated". A Type III supporting organization is deemed to
be functionally integrated if, but for the supporting
organization, the supported organization would be conducting
the same activities.
• Grants may also not be made to Type I or Type II supporting
organizations if a "disqualified person" directly or indirectly
controls the supporting organization or the supported
organization.
Supporting Organizations (SO)
• A supporting organization is most cost
effective with assets of $5 million or more.
• As a separate nonprofit organization, the
financial management and reporting are the
responsibility of the board of the supporting
organization.
Why use Supporting
Organizations?
• Their public charity status makes supporting organizations
an excellent alternative for family foundations because
donors may receive favored tax status versus that of a
private foundation.
• A major contributor, member of his/her family, or business
entity he/she controls may be a very active member or
officer of the supporting organization. This is what makes a
SO attractive to donors.
SO cannot be controlled directly or indirectly by the above.
What is
a DonorAdvised
Fund
(DAF)?
• Funds or accounts created by
agreement between a donor and a
public charity that gives the donor
the right to advise the charity
regarding the distributions from the
fund to other charities and the
investment (to a degree) of the fund
assets
• Funded by one or more irrevocable,
outright charitable contributionsimmediate tax deduction
• Right to name the fund- ongoing
recognition
• Advisory rights to other people
• Succession
Why have a Donor-Advised Fund?
• No distribution requirements
• No minimum activity requirements
• Not subject to private foundation excise taxes &
penalties (except for excess business holdings)
• Minimal administrative costs
• Contributions offer greater tax benefit
• Donor can use the philanthropic expertise
• Provides the due-diligence on grants- can grant to
any 501 (c)(3) including houses of worship-CFGAno geographical restriction
• Anonymity if wanted
• CFGA- funds can be managed by Investment
Manager of donor’s choosing
Disadvantages to DonorAdvised Funds (DAFs)
• Donor loses “control” of the money
• Possibility of philosophical conflicts with
sponsoring organization
• Increased due diligence on international grants
• No grants to individuals
• No grants directly to individuals for disaster relief
or emergency hardship
• No grant to any entity if not for charitable purpose
• Donors & advisors- no excess benefit (tables,
loans, compensation)
• Excess business holdings
• No payments of legally binding pledges
What to consider for a Donor-Advised
Fund (DAF)?
What are the fees?
o administrative
o Investment/ brokerage
What services does the sponsor provide?
o 1-800 number
o Personal service
Are there any limitation on the charities to which
a donor may request a grant?
o Limited geographical scope
o Limited philosophical/ mission scope
What assets to consider for a Donor-Advised
Fund (DAF)?
What types of
assets will the
sponsoring
organization
accept as
contribution
to
a fund?
• Cash
• Publically traded stocks and
securities
• Real estate
• Private company stock
• FLPs
• Partnership and LLC
interests
• Race horse
• Bull on Wall Street
• Other Business Interests
What to consider for a DonorAdvised fund?
What are the
investment
options available
for the DonorAdvised fund and
cost?
• Unitized Pool
• Money Market
• Individual
investment manager
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Unlimited
How many
successor advisors • One or two
does the sponsor
generations
allow?
What to consider for a
Donor-Advised Fund?
What is the reputation of the sponsor?
Track record of service and support to donors
High standards in its governance
Large enough asset base to generate fees to
fund staff
• Other fundraising obligations put on donors
• Tied to an affinity group
• Role in philanthropy other than its DAFs
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Private Foundation to a
Donor-Advised Fund
Times to do both?
• Can control when to give to a specific charity
• Can make an anonymous gift
• Can branch out to a different area of
grantmaking
• Can take advantages of TCF services
Change could be coming
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Elimination of the Charitable Deduction
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Possible cap on deduction at $100,000
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Lower capital gains
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Elimination of Estate Tax
Thank You!
Contact Information:
Christy Butler Eckoff, Director of
Gift Planning
[email protected]
404-588-3183