Donor choice, part 3 – Donors shop to meet needs

[Editor’s note: This is the third in a series of stories looking at choices facing donors.]

By Todd Cohen

The relative benefits and drawbacks of philanthropic options available to donors depend on their individual needs.

Private foundations may attract wealthy donors who want control over making grants, investing charitable funds, hiring staff, selecting auditors, hiring professional advisers and even paying family trustees, experts said.

Private foundations also may appeal to donors making larger gifts.

“We still believe private foundations are pretty difficult to justify with balances less than $1 million,” says Andrew Tappe, senior vice president for Fidelity Private Foundation Services in Boston.

Still, as more options have emerged over the last five years, more donors have opted to make big gifts to public charities such as donor-advised funds or supporting organizations at community foundations, says Eileen Heisman, president of the National Philanthropic Trust in Jenkintown, Pa.

While private foundations give donors a lot of control, they also leave it to donors to handle back-office functions, such as managing grants, complying with tax regulations and tracking the performance of investments.

Donors who do not want those jobs but do want to focus their giving in a particular community and are looking for expert advice on local needs and charities often turn to community foundations, says Malcolm A. Moore, a partner in the Seattle office of law firm Davis Wright Tremaine

“The benefit of the community foundation is that the people who make the grants have their ears to the ground and can move with the times,” he says.

Community foundations also can address community needs that may emerge after the death of the donors, says Heisman.

On the other hand, she says, community foundations typically limit the number of generations that a donor’s family can give advice on grants, may not let donors transfer funds to other philanthropies and may limit to 5 percent the amount of donor funds that can be spent in a given year.

A third option consists of national donor-advised-fund programs, which provide back-office administrative and financial services while letting donors and their families make gifts anywhere, give advice for unlimited generations, spend as much of their funds as they want, transfer funds to other donor-advised-fund programs and even make suggestions on investments handled by pre-approved managers

On the other hand, national donor-advised-fund programs do not have a local focus.

And like community foundations, they remove some control from donors, who cannot, for example, use the funds to pay family trustees or close advisers.

Other stories in the series:

Part 1 – Philanthropy market diversifies [10/6/03]

Part 2 – Need spurs philanthropy market [10/8/03]

Part 4 – Service fuels philanthropy [10/20/03]

Part 5 – Financial firms target donors [10/27/03] 

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