Courting donors – $35M at Harvard

By Todd Cohen

Donor-advised funds, used for years by community foundations and more recently by big financial institutions, are catching on at colleges and universities.

At Harvard, for example, donor-advised funds have grown to about $35 million since the school began using them in 1997.

Once considered “the poor man’s private foundation,” a donor-advised fund is a commingled charitable account, or component fund of public charity or community foundation, working roughly like a private foundation but managed by a public institution and receiving more favorable tax treatment.

Donors can reap multiple benefits by creating donor-advised funds, says Charles Collier, senior philanthropic adviser at Harvard, which manages its donor-advised funds in its endowment but accounts for them separately.

Take the case of the CEO of a major financial institution, whose annual salary and bonus last year were roughly $10 million.

He had planned to make gifts over five years to a program at Harvard and to an independent school where his wife serves on the board.

But to take advantage of a late-year surge in the value of his company’s stock that meant a huge bonus for him in 2000, he opted in December to create a donor-advised fund of about $2 million that still will let him spread both gifts over five years.

The donor enjoyed an immediate deduction of up to 30 percent of his 2000 adjusted gross income, Collier says, compared to a deduction of no more than 20 percent that he could have taken by making the same gift to a private foundation.

The donor also can control how much money is released to the two schools, and when, over five years.

And because the money in the fund is invested in Harvard’s endowment, the value of the gift could grow over the five years.

Finally, because the gift consisted of stock in the donor’s company, he was able to avoid the capital-gains tax he would have had to pay because of the appreciation in the stock’s value.

While Harvard is the legal donee of the gift from the CEO, terms of the fund allow him and his wife to direct half the principal away from Harvard and to other causes, specifically the independent school.

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