A Donor Advised Fund, as defined by federal legislation, possesses three main characteristics:
- The Fund is separately identified with reference to the contributions of a donor or donors. For example, the Smith Family Fund established by the Smith family children.
- The Fund is owned and controlled by a sponsoring organization, for example the Community Foundation of Howard County; and
- The donor or persons appointed by the donor expect to have privilege of providing advice with respect to the fund’s distributions. Such suggestions or recommendations are, however, advisory only and the community foundation, as required by law, has the ultimate authority to determine the use and distributions of the fund.
STARTING A DONOR ADVISED FUND
The Community Foundation of Howard County will accept donor-advised funds on a case by case basis that are within the purposes defined in the Community Foundation of Howard County’s Articles of Incorporation and that primarily, albeit not exclusively, benefit charitable organizations within Howard County.
A letter of agreement between The Community Foundation of Howard County and the donor(s) will establish the basis of understanding between the parties and will be consummated with the donor if the Board of Trustees elects to accept the fund.
An Endowed Donor Advised Fund is activated upon receipt by The Community Foundation of Howard County of a fully executed Letter of Agreement and an initial gift of $10,000 or more. The minimum size of an endowed donor-advised fund will be $10,000 Donors who intend to establish a fund may take up to 5 years to reach the fund minimum.
If, at the end of five years, the fund has not reached the minimum, the fund will become an unrestricted grant fund within the Foundation. It may be deposited in the endowment or grant account depending on the donor’s intent.
The donor will provide in writing the intent of the fund. The donor may also designate an advisor or advisors to interact with The Community Foundation of Howard County on the donor’s behalf. In the event circumstances change in regards to the fund and/or the donor is no longer living, it is important for future boards to have direction to determine the appropriate course for the fund.
If the donor has specific distribution income requirements, they will be addressed in the Letter of Agreement. Distribution requirements, other than agreed upon with the donor, will be consistent with those described in the Investment Policy for The Community Foundation of Howard County. There will be an annual distribution from the fund to the designee(s) unless otherwise stipulated.
CONTRIBUTING TO A DONOR ADVISED FUND
Contributions may be added at any time and in any amount, subject to acceptance by the Foundation. Contributions should be clearly designated by fund name: “The XYZ Fund of The Community Foundation of Howard County.” Contributions of property that may not have immediate liquidity are accepted at the discretion of the Foundation, and subject to completion of our due diligence procedures.
The Community Foundation of Howard County will accept various types of assets (stock, life insurance, cash, real estate), but reserves the right to reject any property if it does not reasonably appear that the property can be converted into income-producing assets within a specific time frame, or if the property may appear to cause a liability to the Foundation.
Once a Donor Advised Fund has been activated and as long as it maintains a fund balance of at least $10,000, the donors named in the Agreement may recommend distributions to non-profit organizations exempt from federal taxation under section 501(c)(3) of the Internal Revenue Code. Such non-profits generally include those that are not also private foundations, and certain governmental organizations. These include charitable, religious and educational organizations, as well as schools, public libraries and other units of government. Examples of organizations not eligible for contributions from a Donor Advised Fund include fraternal orders, organizations whose primary purpose is lobbying, cemetery associations and funds set up to provide emergency relief to specific individuals or families.
The donor, or other advisor named by the donor when a fund is established, may submit written recommendations for fund distributions and consult with Foundation staff
regarding community needs. Recommendations will be given careful and thoughtful attention. It is understood, however, that they will be advisory only, and will not be binding on the Board, which legally must retain final responsibility for all distributions made from the Foundation. The minimum size of a distribution is $250 in the State of Maryland and $500 for out-of-state.
PARTNERSHIPS IN PHILANTHROPY
From time to time the Community Foundation of Howard County may bring to the donor’s attention grant making opportunities in which the donor may have an interest. The donor is not obligated to recommend a grant for the identified program. Donors shall be furnished with lists of the unmet charitable needs of the community as determined by the Foundation from time to time.
GRANT RESTRICTIONS & PROHIBITIONS (IRS Regulations)
The Community Foundation of Howard County maintains a balance between donor involvement and governing board control and complies with all applicable laws and regulations. The Foundation has developed the following guidelines to ensure compliance:
- Grants from a Donor Advised Fund cannot result in the donor, advisors or any related parties receiving an exchange of goods or services or any personal or material benefit that is not provided to the general public (for example newsletters). Prohibited benefits include tickets, memberships, meals, preferred parking, preferred seating, discounted merchandise or other preferential treatment from a grantee organization.
- Donor Advised Fund grants also cannot be used to satisfy all or a portion of a pre-existing personal pledge or other financial obligation of the donor, advisors or any related parties. Advisors may, however, recommend that a grant be paid out over multiple years, subject to grant approval and annual due diligence.
- Provisions of the Pension Protection Act of 2006, prohibit Donor Advised Funds from making any grants to individuals such as scholarships, emergency hardship grants or disaster relief grants. This includes checks written directly to an individual or checks written to an entity for the benefit of a specified individual. For example, a grant to a university for the benefit of a designated student is prohibited.
- Donors, advisors or any related parties may not receive grants, loans, compensation or similar payments (including expense reimbursements) from donor advised funds.
INVESTMENT OF FUND ASSETS
The Community Foundation of Howard County has the sole responsibility and authority for investment of the assets of each Donor Advised Fund. Decisions with respect to the retention, investment, or reinvestment of assets and with respect to commingling of assets shall be made by the Investment Committee of the Board of Trustees.
Endowed Donor Advised Funds are customarily invested and commingled with assets of other funds of the Foundation. The donor may be granted the privilege of making suggestions or recommendations as to the distribution of the assets of the fund for charitable purposes. Such suggestions or recommendations are, however, advisory only and the Foundation, as required by law, has the ultimate authority to determine the use and distributions of the fund.
The Foundation’s investment objective is to provide preservation of capital and growth of principal while yielding a return for use by the Foundation and its donors for grants and operating expenses.
The Community Foundation of Howard County may charge an administrative fee in connection with the administration of the fund, such fee to be established in accordance with the Foundation’s Administrative Fee Policy. The agreement establishing any individual fund may contain provisions setting a specific fee structure for that fund.
Gifts to a Donor Advised Fund are irrevocable. The assets of donor advised funds are owned and controlled by The Community Foundation of Howard County.
Pursuant to IRS regulations, The Community Foundation of Howard County has variance power “to modify any restriction or condition on the distribution of funds for any specified charitable purpose or to any specified organization if in the sole judgment of the governing body such restriction or condition becomes, in effect, unnecessary, incapable of fulfillment, or inconsistent with the charitable needs of the community or area served.”