Donor Advised Funds FAQ
What is a donor-advised fund?
A donor-advised fund is a charitable fund for donors seeking active involvement in grantmaking. Donors – and their children, partners, or other designated advisors – recommend grants from their fund to support nonprofit organizations. Donors can also benefit from the grantmaking experience, research capacity and understanding of community needs provided by the Brooklyn Community Foundation and can work with Foundation staff to create a lasting philanthropic legacy.
How does a donor-advised fund work?
With a donor-advised fund, donors make an irrevocable contribution to a fund established at the Brooklyn Community Foundation and receive an immediate tax deduction. The Fund’s assets are invested by the Foundation, and the donor can make grant recommendations from the accumulated assets in the fund over time.
The Brooklyn Community Foundation handles the grantee research, issues checks to grantee organizations recommended by the donor and designated advisors, manages the assets, ensures proper tax reporting, and provides staff assistance through a range of donor services.
What are the benefits of a donor-advised fund?
Donor-advised funds are easy to establish and allow donors flexibility and ease with their giving. Some advantages include:
- Immediate tax deduction for donors with the ability to recommend grants over time;
- Ability for donors to focus on philanthropic giving rather than on administration and paperwork;
- Online grant-making and account information allow donors to track grants, see giving history, and search organizations online;
- Opportunity for donors to name the account (e.g., The Smith Family Fund) and have all correspondence and checks sent to grantees from the fund, ensuring recognition for their philanthropic support;
- Ability to make anonymous gifts to causes and organizations of interest to a donor while keeping personal information and details private;
- Investment and growth of assets;
- Opportunity to include other advisors (children, partners, others) in the grant-making of the fund by designating them as advisors to the fund.
What are the advantages of a donor-advised fund over a private foundation?
Given the recent decline in the assets of many private and family foundations, many small foundations have transferred their assets to donor-advised funds at community foundations because of the numerous advantages they offer. Donor-advised funds receive more favorable tax treatment, defined below, than private or family foundations, and their administrative costs are considerably less than the annual costs of operating a foundation.
Some of the benefits of a donor-advised fund include:
- No annual excise taxes and the ability to receive tax deductions for contributions on a greater percentage of a donor’s annual income;
- Tax reporting handled by the Brooklyn Community Foundation;
- No annual requirement to pay out 5% of assets;
- No cost to establish a donor-advised fund vs. $10,000+ in potential legal fees to establish a private foundation;
- Ability to make gifts anonymously.
How is the Brooklyn Community Foundation ensuring that donor-advised fund giving helps Brooklyn communities, while also allowing donors flexibility in their giving?
In order to support Brooklyn’s greatest community needs, all donor-advised funds at the Brooklyn Community Foundation will designate 10% of their initial contribution and 10% of their fund annually to one of the Field of Interest Funds established to make grants in Brooklyn.
Donors select which funds they wish to support and can change their designation annually if they choose. The Field of Interest Funds:
- Arts for All supports vibrant arts options in community settings through programs that facilitate widespread arts access and promote youth arts mastery.
- Caring Neighbors supports groups that work to keep vulnerable community residents healthy, independent, and in-place.
- Community Development supports efforts that promote economic security through job training, affordable housing and local economic development.
- Education and Youth Achievement supports academic programs that place young people on a path toward high school graduation, college and/or job readiness.
- Green Communities supports organizations that enhance open spaces, provide environmental education, and promote access to affordable, nutritious food.
- The Fund for Brooklyn, which allocates grants throughout Brooklyn annually based on the greatest needs in the community.
How do I set up a donor-advised fund at Brooklyn Community Foundation?
- Make a tax-deductible, irrevocable contribution of $10,000 or more to a fund you establish at the Brooklyn Community Foundation.
- Determine the name of your fund.
- Designate any additional advisors, if you choose to.
- Select one of the Field of Interest Funds from the Brooklyn Community Foundation’s funds to receive the annual 10% donation from your fund’s assets.
- Make grant recommendations to qualified nonprofit organizations of your choosing.
- Make additional contributions of $1,000 and above at any time to your fund.
Can I use my donor-advised fund for planned giving?
Many donors use their donor-advised fund as part of their planned giving. A donor-advised fund can be, in most circumstances, designated as the beneficiary of charitable trusts, retirement plans, and life insurance policies. Subject to the Foundation’s policies, a donor can contribute appreciated stock and other assets to a donor-advised fund. Additionally, a donor can identify successor advisors to recommend grants from the fund in years to come or define giving parameters for the Fund to be administered by Brooklyn Community Foundation to address future community needs.
Is there any grantmaking I cannot do with a donor-advised fund?
Donor-advised funds cannot be used to:
- satisfy existing pledges made by donors or their family members to charitable organizations;
- purchase tickets or pay for memberships, goods or services received by the donor or anyone related to or affiliated with the donor; or
- provide any tangible benefit to donors or anyone related to or affiliated with donors.
- support religious activity, such as proselytizing or missionary work, or the general operations of a religious or faith-based organization or institution.
- give to political parties, political campaigns, or political action committees.
Additionally, grants from donor-advised funds at the Brooklyn Community Foundation will only be made to U.S.-based, publicly-supported charitable organizations. Grants will not be made to individuals, foreign organizations, private foundations, supporting organizations or non-charitable organizations.
Donors also cannot withdraw money from the fund once it is established. All donations to the fund are irrevocable and the assets become the property of the Brooklyn Community Foundation, with grants from the fund to be recommended by the donor. By law, the Foundation's governing body must be free to accept or reject the recommendations. The Foundation takes into account each donor’s recommendations for grant distribution very seriously. However, final discretion in all cases rests with the Foundation’s Board.