Trust matters: Your clients’ go-to resource for community impact

As attorneys, CPAs, and financial advisors, you know very well that trust is at the foundation of your client relationships. Your clients desire a similar level of trust with the people and organizations that are helping carry out their philanthropic wishes.

Fortunately, trust in charities has shown an increase after a recent dip. According to the 2024 Edelman Trust Barometer and the Independent Sector's "Trust in Nonprofits and Philanthropy" report, trust in nonprofits rebounded by 5 points to 57% in 2024, following a four-year decline. This increase positions nonprofits as the most trusted sector compared to government, business, and media. Still, nonprofits face challenges and concerns about maintaining this trust, including general skepticism about institutions, as well as increasing expectations that charities demonstrate transparency and accountability.

As you work with your charitable clients, keep in mind that the Community Foundation can help bolster clients’ trust in their favorite charities. Here’s how: 

1. Trustworthy information about particular charities

The Community Foundation is a valuable source for objective, timely information about specific charities and the impact of particular programs. By working with the Community Foundation, your clients can leverage a transparent and trustworthy avenue for learning how best to make a difference for their favorite causes.  

2. Wide-ranging expertise about community needs

At its core, the Community Foundation is committed to achieving impact. This means that our team keeps a finger on the pulse of local needs, whether related to social services, health care, education, the environment, the arts, community development, or any other community priority. With a deep understanding of community needs, the Community Foundation team can be an excellent sounding board for your clients who want to learn which charities are addressing each need and how those charities are measuring results. 

3. Broad set of tools for structuring charitable gifts

The Community Foundation can help establish a tax-efficient structure to achieve each client’s goals for community impact. Available vehicles include not only donor-advised funds but also other types of funds such as designated funds to support specific charities and field-of-interest funds to address particular causes, as well as multi-generational funds to involve clients’ children and grandchildren. The Community Foundation offers your clients a flexible and effective way to manage charitable giving by simplifying their giving processes and maximizing potential tax benefits.

As always, we want to be your first call! Please reach out to the Community Foundation team anytime the topic of charitable giving comes up during a client conversation. 

Weighing the options: Private foundation or donor-advised fund?

When you’re working on the charitable components of a client’s estate or financial plan, one of the first areas you’ll likely explore is the structure. Certainly, you are familiar with both private foundations and donor-advised funds as useful charitable giving tools. Before you jump into one or the other for a particular client, though, it’s important to review the similarities and differences between the two so that you can best achieve your client’s goals. 

To help you evaluate a client’s options, here are three common myths about the differences between private foundations and donor-advised funds.

Myth #1: Donor-advised funds are all the same and only private foundations can be customized

Private foundations will always differ from donor-advised funds in important ways, not only because of their status as separate legal entities and the deductibility rules for gifts to these entities, but also because of the opportunities to customize governance. But it is a mistake to assume that a donor-advised fund is a cookie-cutter vehicle. Indeed, “donor-advised fund” is simply a term used to describe the structure of a fund and its relationship with a sponsoring organization such as a Community Foundation. The donor-advised fund vehicle itself is extremely flexible. Here’s why:

– Donor-advised funds are popular because they allow your client to make a tax-deductible transfer of cash or marketable securities that is immediately eligible for a charitable deduction. Then, your client can recommend gifts to favorite charities from the fund when the time is right. 

– A donor-advised fund at the Community Foundation is frequently a more effective choice than a donor-advised fund offered through a financial institution. That’s because at a Community Foundation, your client is part of a community of giving and has opportunities to collaborate with other donors who share similar interests. Plus, the Community Foundation is itself local and is deeply knowledgeable about the needs of our region and the nonprofits meeting those needs. 

– The Community Foundation can work with you and your client to build a charitable giving plan that extends for multiple future generations. That is because the team at the Community Foundation supports your clients in strategic grant making, family philanthropy, and opportunities to learn about local issues and nonprofits making a difference. 

Myth #2: Deciding whether to establish a donor-advised fund or a private foundation mostly depends on size

The size of a donor-advised fund, like the size of a private foundation, is unlimited. The United States’ largest private foundations are valued well into the billions of dollars. Information about private foundations, ironically, is not so private. The Internal Revenue Service provides public access to private foundations’ Form 990 tax returns. That is not the case for individual donor-advised funds.

Similarly, donor-advised funds are not subject to an upper limit. Although information on the asset size of individual donor-advised funds is not publicly available, anecdotal information indicates that some donor-advised funds' assets may total in the billions of dollars.

Indeed, a donor-advised fund of any size can be an effective alternative to a private foundation, thanks to fewer expenses to establish and maintain, maximum tax benefits (higher deductibility limitations and fair market valuation for contributing hard-to-value assets), no excise taxes, and confidentiality (including the ability to grant anonymously to charities).

The net-net here is that the decision of whether to establish a donor-advised fund or a private foundation–or both–is much less a function of size than it is other factors that are tied more closely to the objectives a client is trying to achieve. 

Myth #3: Donor-advised funds and private foundations are mutually exclusive

Make sure you’re aware of the benefits of using both a donor-advised fund and a private foundation to accomplish clients’ charitable goals. For example:

– Donor-advised funds can help meet the need for anonymity in certain grants, which is typically difficult using a private foundation on its own.

– A donor-advised fund can receive a client’s gifts of highly-appreciated, nonmarketable assets such as closely-held stock and real estate, and benefit from favorable tax deduction rules not available for gifts to a private foundation.

– An integrated donor-advised fund and private foundation approach can help a client balance and diversify investment and distribution strategies to ensure that giving to important causes remains steady even in market downturns.

Some private foundations are even considering transferring their assets to a donor-advised fund at the Community Foundation to carry on the foundation’s mission. Terminating a private foundation and consolidating giving through a donor-advised fund is sometimes the best alternative for a client when the day-to-day management and administration of the private foundation has become more time-consuming than expected and is taking time and focus away from nonprofits, the community, and making grants. 

Along these lines, some families find that the tax rules related to investments, distributions, and “self-dealing” have become harder to navigate and are perhaps even preventing the family from maximizing the tax benefits of charitable giving. Finally, the administrative load of managing a private foundation sometimes becomes overwhelming, especially if the family members who handled these functions initially have retired, passed away, or simply become busy with other projects.

The bottom line here is that we encourage you to reach out to the team at the Community Foundation anytime you are evaluating how to structure a charitable giving plan to achieve both your client’s charitable goals and financial goals. Our team is here to help. In many cases, the Community Foundation’s tools and services are a great fit for your client’s needs. If not, we will point you in the right direction. 

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The team at the Community Foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation.

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