PFs SOs DAFs oh my Christy Butler Eckoff

PFs, SOs & DAFs, oh my!!! Christy Butler Eckoff, J. D. , LL. M, CAP, CFRE Director of Gift Planning

Our Mission The Community Foundation for Greater Atlanta strengthens our region by providing quality services to donors and innovative leadership on community issues.

What is a Community Foundation? A community foundation is a tax-exempt, nonprofit, autonomous, nonsectarian philanthropic institution supported by the public with the long-term goals of: • • • Building permanent, component funds established by many separate donors to carry out their charitable interests; Supporting the broad-based charitable interests and benefitting the residents of a defined geographic area, typically no larger than a state; Serving in leadership roles on important community issues.

Who We Are • • • We connect the passions of donors with the purposes of nonprofits Nonprofit, 2 nd largest foundation in Georgia 18 th largest community foundation in the United States • 66 years old • Serve 23 -county Atlanta region • 50 members of the team

How We Work Donor. Advised Funds Planned Gifts Supporting Organizations Scholarships Designated Funds Field of Interest Funds

2016 Scope and Scale • Current Assets: $955 million • Donor contributions: $135 million • Grants awarded to nonprofits: $125 million • 7, 300 grants to 2, 400 nonprofits • 950 donor funds under management • Since 1951: Granted $1. 5 billion • Top areas – Arts, Education, Well-being

Our Work with Professional Advisors • • Individually Managed Funds A charitable resource to you and your clients Balser Philanthropic Advisor Council Philanthropic Advisor Leadership Institute Balser Symposium Planned Giving Design Center Special Events

2014 contributions - $358 billion by source in billions of dollars – all figures are rounded – Giving USA

2014 Giving – Giving USA by type of recipient organization (in billions of dollars – all figures are rounded)

Charitable Giving in the US • • Average household contribution in 2015 was $2, 974 Atlanta – 4 th most charitable city in US

Philanthropic Vehicles Cash Check Donor Advised Funds Supporting Private Organizations Foundations

What are you looking for? Convenience Control Investment opportunity Impact Family involvement Maximize deduction

Comparisons

Comparisons

What is a Private Foundation? Defined by what it is not- • It is a charity that is NOT a public charity defined by Section 501(c)(3) • Not a Supporting Organization • It is a not for profit entity • Can be controlled by a person, family or business

What is a Private Foundation? • It is organized exclusively for charitable, educational, religious, scientific and literary purposes under Section 501 (c) (3) of the IRS Code. • Must be officially recognized by the IRS in order for contributions to be tax- deductible. • Own Legal entity & all those rights and responsibilities

What is a Private Foundation? • Usually derives it’s principal fund from a single source as individual, family or corporation, & is more often than not a grant maker • Does not solicit funds from the general public • Just because it says foundation does not mean it is a private foundation (have to look for a Form 990 PF)

What is involved in starting a Private Foundation? Form a 501(c)(3) corporation Seek exempt status Create a board of directors Create bylaws Hold an organizational meeting Hold annual meetings Manage the “business” • audit, tax, payroll, accounting and finance, legal • Due diligence on all grant-making • •

Type of Private Foundations Private Distributes funds to its own active Operating programs that exist for charitable Foundation purposes Private Non- Distributes funds to other charitable Operating organizations do not directly perform Foundation any charitable services or programs

Why have a Private Foundation? • Cache -Personal recognition • Control – over donor’s charitable program – can pay grants for charitable purposes that are not tax exempt • Make grants to individuals • Can hire family members as paid officers and trustee as long as reasonable compensation • Free to invest as you want (prudent) • Can last forever or limited time • Income tax deduction • International grantmaking – requires extreme due diligence

Why NOT to have a Private Foundation? • Want anonymity • Do not want the administrative and legal responsibilities • Due diligence requirements • Want to change focus of grant making • Can’t spend out required disbursements • Excess business holdings restrictions – excise tax – self-dealing • Minimum 5% payout of assets – excise tax • Self-dealing restrictions – disqualified people

Disqualified People • Foundation manager • Donors • Owners of more than 20% of a corporation, trust or partnership that is a substantial contributor • Any Family member of spouse of above • Any entity that a disqualified person has a more than 35% interest • Can’t engage in a sale, exchange, leasing of property, lend money or credit • Can only be paid for services provided and expenses incurred in carrying out the exempt purpose of the private foundation

What is a Supporting Organization? • A public Charity established under 26 USCA 509 (a)(3) • Either makes grants to, or performs the operations of, a public charity- like a private charity • Donations to a supporting organization garner the same deduction treatment as donations to a public charity- unlike a private foundation

3 Basic Requirements of Supporting Organizations (SO) SO must be organized and operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of, one or more public charities described in section 509(a)(1) or section 509(a)(2)

3 Basic Requirements of Supporting Organizations (SO) SO’s relationship with it’s supported organization must fall within one of three categories: – Type 1 - operated, supervised, or controlled by; or – Type 2 - supervised or controlled in connection with; or – Type 3 - operated in conjunction with the supported public charity

3 Basic Requirements of Supporting Organizations (SO) SO may not be controlled by disqualified persons (other than foundation managers or public charities) • They operate as separate charities with their own charters, bylaws, and boards.

Supporting Organizations (SO) • Generally, to qualify as a public charity, an exempt organization must receive at least onethird of its financial support from a broad spectrum of donors. • A supporting organization does not have to meet this "public support test" because a supporting organization qualifies as a public charity due to its close structural and financial relationship with another nonprofit organization that is itself a public charity.

Type I SO • Are operated, supervised, or controlled by the supported organization (a parent-subsidiary relationship), where the public charity appoints at least a majority of the supporting organization’s board of directors. Type II SO • Are usually designed with a majority of directors serving on both the supporting organization’s and the supported organization’s boards (brothersister relationship). Type III SO • Are the least structured relationship between the two organizations. Typically, the supported organization appoints one or more directors of the supporting organization and institutes other procedures to ensure the responsiveness of the supporting organization to the supported organization

Supporting Organizations • Because of provisions contained in the Pension Protection Act of 2006, there is a misperception that foundations can no longer make grants to supporting organizations. In reality, most supporting organizations can still receive grants. • Type III supporting organizations (the least structured relationship between supported and supporting organizations) cannot receive grants unless they are "functionally integrated". A Type III supporting organization is deemed to be functionally integrated if, but for the supporting organization, the supported organization would be conducting the same activities. • Grants may also not be made to Type I or Type II supporting organizations if a "disqualified person" directly or indirectly controls the supporting organization or the supported organization.

Supporting Organizations (SO) • A supporting organization is most cost effective with assets of $5 million or more. • As a separate nonprofit organization, the financial management and reporting are the responsibility of the board of the supporting organization.

Why use Supporting Organizations? • Their public charity status makes supporting organizations an excellent alternative for family foundations because donors may receive favored tax status versus that of a private foundation. • A major contributor, member of his/her family, or business entity he/she controls may be a very active member or officer of the supporting organization. This is what makes a SO attractive to donors. SO cannot be controlled directly or indirectly by the above.

What is a Donor. Advised Fund (DAF)? • Funds or accounts created by agreement between a donor and a public charity that gives the donor the right to advise the charity regarding the distributions from the fund to other charities and the investment (to a degree) of the fund assets • Funded by one or more irrevocable, outright charitable contributionsimmediate tax deduction • Right to name the fund- ongoing recognition • Advisory rights to other people • Succession

Why have a Donor-Advised Fund? • No distribution requirements • No minimum activity requirements • Not subject to private foundation excise taxes & penalties (except for excess business holdings) • Minimal administrative costs • Contributions offer greater tax benefit • Donor can use the philanthropic expertise • Provides the due-diligence on grants- can grant to any 501 (c)(3) including houses of worship-CFGAno geographical restriction • Anonymity if wanted • CFGA- funds can be managed by Investment Manager of donor’s choosing

Disadvantages to Donor. Advised Funds (DAFs) • Donor loses “control” of the money • Possibility of philosophical conflicts with sponsoring organization • Increased due diligence on international grants • No grants to individuals • No grants directly to individuals for disaster relief or emergency hardship • No grant to any entity if not for charitable purpose • Donors & advisors- no excess benefit (tables, loans, compensation) • Excess business holdings • No payments of legally binding pledges

What to consider for a Donor-Advised Fund (DAF)? What are the fees? o administrative o Investment/ brokerage What services does the sponsor provide? o 1 -800 number o Personal service Are there any limitation on the charities to which a donor may request a grant? o Limited geographical scope o Limited philosophical/ mission scope

What assets to consider for a Donor-Advised Fund (DAF)? What types of assets will the sponsoring organization accept as contribution to a fund? • Cash • Publically traded stocks and securities • Real estate • Private company stock • FLPs • Partnership and LLC interests • Race horse • Bull on Wall Street • Other Business Interests

What to consider for a Donor. Advised fund? What are the investment options available for the Donor. Advised fund and cost? • Unitized Pool • Money Market • Individual investment manager • Unlimited How many successor advisors • One or two does the sponsor generations allow?

What to consider for a Donor-Advised Fund? What is the reputation of the sponsor? Track record of service and support to donors High standards in its governance Large enough asset base to generate fees to fund staff • Other fundraising obligations put on donors • Tied to an affinity group • Role in philanthropy other than its DAFs • •

Private Foundation to a Donor-Advised Fund Times to do both? • Can control when to give to a specific charity • Can make an anonymous gift • Can branch out to a different area of grantmaking • Can take advantages of TCF services

Change could be coming Elimination Possible Lower of the Charitable Deduction cap on deduction at $100, 000 capital gains Elimination of Estate Tax

Thank You! Contact Information: Christy Butler Eckoff, Director of Gift Planning ceckoff@cfgreateratlanta. org 404 -588 -3183