Margaret H. Mason | Partner, Norton Rose Fulbright
I meet frequently with individuals and families who are bringing thoughtful consideration to their philanthropy and are contemplating whether a private family foundation would be the most appropriate vehicle to achieve their objectives. Invariably I find myself encouraging them to also consider a Donor Advised Fund or other form of fund held within a community foundation.
A private foundation certainly has the advantage of control, in that the property donated, although owned by the foundation, remains subject to the decision-making power of the directors or trustees of the foundation who are generally the significant donors. The board of the private foundation has the pleasure and privilege of deciding on the grants to be made, the timing of such grants, and to whom grants will be made. The board also decides on the investment of the property held within the foundation.
However, the board of the foundation also has the “pleasure” of ensuring that the books and records of the foundation are properly maintained, that any donation tax receipts are issued in accordance with the technical requirements of the Income Tax Act, that all required corporate filings are made with the Registrar, that reasonably regular board meetings are held and documented, that the preparation and approval of financial statements is undertaken, and that the T3010 Registered Charity Information Return is accurately prepared and filed. Many families underestimate the complexity of the set-up and ongoing administrative requirements (and costs) of a private family foundation and eventually find them burdensome.
Enter the Donor Advised Fund within a community foundation. In many ways a fund within a community foundation is the best of all possible worlds—it provides the ability to pursue philanthropic goals without the responsibility for the technical administration of a registered charity. A properly structured Donor Advised Fund agreement, while not providing a donor with control over the fund, will give a donor (or family) the ongoing ability to make recommendations for grants to be made from the fund and such recommendations can change over time. Such recommendations can be for specific purposes, for specific charities or for specific community funds established by the community foundation.
The donor and/or the donor’s family may also maintain the ability to name successor individuals to make recommendations regarding grants to be made from the fund. By utilizing a Donor Advised Fund within a community foundation, or by considering the other fund possibilities offered by community foundations, the donor can eliminate the set up and ongoing administration and cost of a private foundation, achieve better investment returns for capital funds invested for extended periods of time and still have the ability to meet their philanthropic objectives.
By Margaret H. Mason | Partner, Norton Rose Fulbright