Case Study: Donor-Advised Funds

Example client profile

In the early 1970s, a U.S. Trust client started a family foundation with the mission of supporting local youth organizations in New England where the family resides. Over time, the family has grown to include multiple branches and generations, some of whom have moved away. The matriarch and patriarch of the family have decided to sell the family business and to allocate a significant portion of the proceeds to philanthropy. In preparation for the sale and increased commitment to their philanthropy, they engaged the Philanthropic team to help the family think through their options with regard to the structure of and family engagement in the family’s future giving. They sought our assistance to facilitate a conversation with the extended family to present the options of continuing to participate in the foundation and/or pursuing their own philanthropic plans.

Action steps taken

As an early first step, The team presented to the family an educational overview of the operational, governance and grantmaking requirements of a family foundation as compared to a donor-advised fund, and how each giving vehicle might help them to achieve their respective philanthropic visions. Each branch of the family was presented with the option of establishing its own philanthropic vehicle – be it a foundation or a donor-advised-fund and/or remaining involved with the Foundation. It became apparent during the family meeting, that each family branch would benefit from an individual meeting with the team to address their individual philanthropic goals and ways to pursue them.

Eldest Child: Became more actively involved in the existing family foundation

• The eldest son married and remained in the family’s hometown in New Hampshire. He is actively involved with the existing foundation. He has three married children and three grandchildren with one on the way.

Action steps taken

• The team facilitated a meeting with the family to discuss the history and purpose of the existing foundation, their individual and collective philanthropic values and interests, and some preliminary plans for their family’s giving.
• The parents participated in our Raising Philanthropic Kids workshop to help identify specific, age-appropriate ways to engage each of their children in philanthropy and to help ensure that the legacy of the foundation lives on through their children.
• The team researched new funding opportunities in the area of youth development that aligned with the family foundation’s mission and strategy so they could continue to give back to the communities that have given them so much.

Impact

• Decision: To become more actively involved in the existing foundation
• After affirming its interest in and commitment to the issue of youth development, the family felt compelled by the importance of carrying on the family foundation’s good works in this area, as well as by the founders’ intention to foster family unity, continuity and a lasting legacy.
• They established a Junior Board for the foundation to provide opportunity for the next generation to participate meaningfully in the mission and governance of the foundation.
• The grandparents and parents are pleased with the younger generation’s interest and involvement in the family foundation’s work and appreciate the ability to engage across generations with common purpose. They also value the significant developmental opportunities that are realized by the younger generation’s involvement.
• This has provided the founders with increased confidence in the legacy of the foundation they established.

Second Eldest Child: Stepped down from the existing family foundation and opened a new donor-advised fund

• The second eldest son moved to Seattle, is married with one young child. He is a trustee of the family foundation but frequently misses board meetings. He and his family do not return back to New Hampshire as much as they would like because he and his husband are in the formative stages of their entrepreneurial jobs.

Action steps taken

• The team met with the couple and discussed their concern that they are not fulfilling their obligations to the foundation. They felt they lacked the time to commit to the existing family foundation and that their geographic distance, and infrequent visits have left them ill-equipped to speak to the current needs across New England.
• After talking through their values and priorities, the couple realized that they want to give back to their local community in Seattle in the same way the family foundation gives back to New Hampshire. They decided to focus their giving in Seattle but were not interested in taking on the responsibility of starting a new foundation given the demands of their jobs and young child.
• The couple was interested in integrating their philanthropic plans with their overarching wealth structure and wanted to consider the efficient treatment of their share of the upcoming sale of the family business as well as the diversification of their portfolio which currently has a concentration of highly-appreciated stock.
• Our specialists worked with them and their tax professionals in understanding potential tax implications of donating various asset types (e.g., cash, appreciated stock, real estate, etc.) to a donor-advised fund and how the donation of appreciated stock, in particular, may be more beneficial than if given to a private foundation.

Impact

• Decision: To open a donor-advised fund with the Bank of America Charitable Gift Fund and step down from the existing family foundation
• Since, unlike a private foundation, donor-advised funds currently have no annual distribution requirement, the couple has the time and opportunity to consider their philanthropic strategy and goals which will guide their distribution to various charities over the coming years.
• Their contribution to the fund of both cash and highly appreciated stock helped them to maximize their tax benefit by offsetting the liquidity event from the sale of the company, avoiding significant capital gains tax while also helping to address their portfolio construction concerns
• With the team's help, the couple identified local organizations and setup site visits to learn more about them in order to better understand the needs of their community and where they might have the greatest impact with their giving.

Youngest Child: Stayed involved with the existing family foundation and opened a donor-advised fund

• The youngest child lives in Washington D.C. She is single and working in a publicly visible position.

Action steps taken

• The review with the team helped her to affirm that she wanted to remain active with the family foundation so that she could stay connected with her family, maintain her ties with the New England area, and contribute to the impact the foundation is having.
• Our specialists worked with her to determine her philanthropic priorities and helped her to realize that there were also social issues that she encountered in her work that she would like to address through her philanthropy, but that were outside the scope of the foundation.
• The team identified local conferences, workshops, and webinars for her to attend, to help expand her networks and inform her interests -- including both the youth development focus of the family foundation and her own independent interest areas.
• Because of her public position, she was interested in a charitable vehicle that would allow her to donate to certain organizations anonymously, which was not the practice of the family foundation. The team reviewed the characteristics of a donor-advised fund with her including, the ability to make gifts anonymously from a fund in a way that is not discoverable through public records as gifts from a private foundation can be.

Impact

• Decision: To open a donor-advised fund with the Bank of America Charitable Gift Fund and remain active in the family foundation
• She is delighted to remain active in the family foundation and was able to identify programs that more closely aligned with the its mission and strategy, and connect with other foundations that may provide an opportunity for collaboration in the future.
• Through the establishment of a donor-advised fund, she was able to establish her own giving identity and contribute to causes outside the mission of the existing family foundation that mattered to her without them becoming a matter of public record.

The case study presented is hypothetical and does not reflect specific strategies we may have developed for actual clients. It is for illustrative purposes only and intended to demonstrate the capabilities of U.S. Trust, Bank of America Private Wealth Management and/or Bank of America. It is not intended to serve as investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Results will vary, and no suggestion is made about how any specific solution or strategy performed in reality. Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy.