Frequently-Asked Questions About Donor Advised Funds

The popularity of donor advised funds has risen dramatically in recent years. Community foundations have been offering them for many years, helping connect donors with the causes they care about most. We have compiled a list of the most frequently asked questions about donor advised funds at The Greater Cincinnati Foundation.

GETTING STARTED
What amount do I need to start a fund?
Donor advised funds can be established with an initial contribution of $5,000 or more. If a donor wants to set up a fund but doesn’t have a $5,000 lump sum gift, GCF will accept smaller gifts into a “Builder’s Fund.” As soon as the donor’s Builder’s Fund balance reaches $5,000, a donor advised fund will be established.

GIFTS
Can I give stock?
Absolutely! Many donors find that appreciated stock is the most beneficial contribution possible, because they receive a tax deduction based on the full market value of the shares, but they realize no capital gains when the stock is sold by GCF.

Can I make additional contributions to the fund? Is there a minimum amount?
You are encouraged to make additional contributions to the fund! You will be entitled to take a tax deduction each time you make an additional gift of any size.

Other people (or corporations) can also make gifts to the fund you established (in honor of special occasions, perhaps). Again, there is no minimum contribution amount.

Investments
How is a fund invested?
At the time you establish your fund, you may invest it in one or a combination of the Balanced Pool or the Money Market Pool. Changes to the investment mix may be suggested quarterly for Governing Board approval.

Can I choose my own investment manager?
At the time you establish a fund, GCF will ask you to suggest an investment manager from the current list of professionals who manage funds for the Foundation..

Will my individual financial advisor continue to handle my fund?
GCF’s relationships with financial institutions are established at an institutional level. We will be happy to work in conjunction with your financial advisor; however individual advisors do not have discretion over the investment management of assets.

Fees
What are the fees? Do I have to pay those out of my pocket?
The Foundation’s administrative fee is 100 basis points of the market value of the fund up to $500,000. The fee is calculated and assessed monthly and a sliding scale applies to larger funds. Investment management fees depend on the investment manager you select, and generally range from 28 to 65 basis points. All fees are collected from the investments, so you need not pay any amount out of pocket.

Advisors, Children & Succession
My spouse and I both want to be advisors. Is more than one advisor allowed

Yes.

Can my children to be involved?
Your children can be named as current or successor advisors – meaning that they will have the right to make grant suggestions from the fund. If you wish to engage several generations of your family to work together to support common interests or organizations over time), GCF’s policies permit you to name your grandchildren as “third generation advisors.” In this case, your grandchildren can be named individually or as a class, and they will act as advisors to the fund after your children’s lifetimes.For funds of $1 million or more, it may be possible to provide for unlimited generations of family advice. Please discuss this option with a member of the Giving Strategies Group and your financial advisor.

Can I close a fund?
Contributions to a donor advised fund are irrevocable. All money in the fund must be held for or disbursed to qualified public charities. However, because you reserve the right to make grant suggestions, you could terminate a fund by requesting that the entire balance be granted to qualified nonprofits.

What happens to my fund after I die?
If you have named one or more successor advisors, they will have the right to make grant suggestions until their death(s). If you have not named a successor advisor or after the lifetime(s) of your successor advisor(s), the fund will generally convert to an unrestricted fund at GCF, and the distributable income will be used to benefit worthy nonprofit organizations in the Greater Cincinnati area. Alternatively, you may specify that the fund to convert to an endowment that benefits certain public charities or areas of interest you choose. In this case, before you establish the fund you must advise GCF of the charities you have selected, so that the Declaration of Gift reflects your intention..

Grants
What are the restrictions on grantmaking?
By law, community foundations can only make grants for public charitable purposes. GCF will generally make grants only to qualified tax-exempt 501(c)(3) charities that are public charities (not private foundations). Community foundations cannot fulfill a donor’s individual pledge or legally binding commitment through a grant from a donor advised fund. If GCF is made aware that a grant suggestion relates to a pledge or commitment, the Board will have no choice but to deny the request.Similarly, GCF cannot make a grant if the donor receives any benefit from the grant (e.g., raffle tickets, tickets to a benefit dinner or event, memberships, payment of a relative’s tuition to an educational institution, etc.).

Please note that the Pension Protection Act of 2006 imposes penalties on donor advisors and foundation staff who do not follow these rules.

To what organizations can I make grants?
The fund can make grants to any U.S. 501(c)(3) that is a public charity. Private foundations do not fall under this definition. You may, however, make grant suggestions to schools and places of worship. Further, it is possible to support causes in foreign countries. See GCF’s “International Grantmaking” sheet for more information.

Can I make grants to organizations outside Cincinnati?
Yes. While GCF’s mission is to improve the quality of life in the Greater Cincinnati region, we understand that many people have charitable interests outside the Tristate region. Therefore, any qualified public charity in the U.S. may receive grants from a GCF donor advised fund.

Can I support foreign charities through a donor advised fund?
Yes! International grantmaking is much more complicated than domestic, but GCF can help you. By working through GCF, a grant can be made to support a cause overseas – and it will be in compliance with U. S. tax law and the Patriot Act’s anti-terrorism provisions. Contact a member of the Giving Strategies Group for more detail.

How quickly will a check issue once I submit my grant suggestion?
Generally, your grant check will be mailed within three business days of receipt of the suggestion. Due to the complexity involved, international grants may take longer.

What is the minimum grant amount I can suggest?
To minimize administrative costs, grants must be at least $100.

Is there a limit to the number of grants I suggest each year?
No.

Do I have to make grants every year?
You are under no obligation to make grant suggestions from the fund, but we encourage you to be an active philanthropist and use your fund to support all your charitable interests.

I want to control the grantmaking from my fund? Is that possible?
You may be involved in the grantmaking from the fund, but may not control it. In accordance with tax law, when you establish a donor advised fund you must relinquish control of the assets you contribute to the fund in order to take a charitable deduction. However, you do retain the right to make grant suggestions for the review of the GCF Governing Board. (See “Why does the Board have the final authority to approve or deny the grant?” below.)

Why does the Board have the final authority to approve or deny the grants?
IRS regulations require that a donor relinquish control over the gift at the time it is made. (Donors only qualify for a tax deduction if they give the money to a public charity and relinquish the right to control it.) Consequently, the Governing Board at GCF is legally empowered to approve or deny a donor’s grant suggestion.

Are grants ever denied?
If a donor suggests a grant to an organization that does not qualify for tax-exempt status, or if it is clear that the donor would receive some benefit from the grant, the Board would deny the request. However, if all suggested grant recipients are qualified U.S. public charities, and there is no suggestion of private benefit to the donor, the Board will endeavor to honor the donor’s wishes.

I want to fulfill a pledge/commitment to a specific charity through my fund. Can I do that?
No. By law, GCF may not issue grant checks to fulfill a pledge or commitment. (See above “What are the restrictions on grantmaking?”) If a donor were permitted to use an advised fund to fulfill a legal obligation or pledge, it would be clear that the donor never truly ceded control of his or her gift to GCF. For this reason, GCF cannot satisfy a donor’s pledge or obligation, even if the commitment is to a qualified public charity. If GCF is made aware that your grant suggestion relates to a pledge or commitment, the Board must deny your request.

What do I do when an organization asks for a pledge?
A donor might respond to a request for a pledge by giving an indication of intent, such as: “We have suggested (or We will be suggesting) that a grant be made from the {name of fund} of The Greater Cincinnati Foundation to {name of organization}. Pending approval by the GCF Governing Board, a check will be issued from the Foundation to {name of organization}.”

Why can’t a donor advised fund make a grant for a fundraising gala?
There are specific IRS rules regarding the deductibility of charitable contributions for which donors receive a benefit. (For example, when a person buys tickets to a fundraiser and receives a dinner as part of the cost of the ticket, then the deductible amount is equal to the cost of the ticket less the value of the dinner.) Since a gift to GCF results in a full charitable deduction, then the donor may not receive goods and services in exchange for that gift. You may make a grant in response to a fundraising event in lieu of attending. Further, the Pension Protection Act of 2006 expressly prohibits donors from receiving “more than incidental benefits.” Penalties apply for not following the rules.

What do I do if an organization asks me to buy tickets?
Remember this rule of thumb regarding grants for memberships or special events:If  you could not write a check from your personal checking account and receive a full deduction for the gift, then GCF will not be able to make a grant. Note the following possible language: “I am suggesting a grant to {name of organization} from my donor advised fund at The Greater Cincinnati Foundation. Please note that if the grant is approved, it does not qualify for goods or services. I do not wish to receive any goods or services.”

Can a donor advised fund make a grant to an individual?
No. Donor advised funds may not make grants to individuals either directly or indirectly or to a charitable entity for the benefit of a specified individual. Further, donors, advisors or related parties are prohibited from receiving grants, loans, compensation or similar payments (including expense reimbursements) from donor advised funds.

Can I hold a fundraising event and get reimbursed for my expenses in organizing the event?
No. Under the Pension Protection Act, donors, advisors or related parties are prohibited from receiving grants, loans, compensation or similar payments (including expense reimbursements) from donor advised funds.

Please request a copy of GCF’s Procedure Regarding Public Fundraising for Component Funds.

International Grantmaking