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Warner Norcross + Judd LLP is a corporate law firm with over 230 attorneys serving clients in nine offices throughout Michigan. Among the largest law firms in Michigan, Warner works in virtually all areas of business law.

Michigan Law Firm - Warner Norcross + Judd LLP

Are you thinking about changing the scale, impact or longevity of your charitable giving in 2020? Perhaps you have been considering forming a private foundation or creating a donor-advised fund to accomplish your philanthropic goals. Understanding the pros and cons of each giving strategy can help as you determine the best option to meet your family development and philanthropic goals.

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The difference between a donor-advised fund and a private foundation.

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A donor-advised fund is a charitable vehicle administered by a public charity. Although the donor can advise as to the recipient of grants made by the public charity for a certain period of time, the fund is managed and administered by the charity.

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A private foundation is an independent, grant-making organization that is not affiliated with any other charitable entity. The donor and governing body for the foundation have complete control over investments and distribution decisions and are also responsible for the administration of the foundation.

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Why should I consider a donor-advised fund?

Fixed administrative fee (typically around 1%)

No management or administration responsibilities, and no separate tax returns

Pooling of the charity’s assets provides access to investment managers or vehicles that may not be available or efficient for many foundations

Why should I consider a private foundation?

Opportunity for whole family involvement – committee and board positions provide excellent training for the next generation in investing, grant-making, taxes, compliance and entity governance

Potential to create shared giving interests and goals for the family

Helps pass family values and legacy to the next generation as they watch family decision making in action

No limit on duration of family member involvement

Full control over investments (strategies, managers, etc.)

Flexibility for unusual grants or multi-year commitments

Disadvantages of a donor-advised fund.

Time frame for family involvement is limited to one or possibly two generations

Administrative fee may exceed actual administration costs for funds larger than $1M

Little flexibility to make multi-year support commitments

No control over investment performance or remedy for sub-standard performance

Disadvantages of a private foundation.

Legal and accounting fees to create the entity and qualify with the IRS

Responsible for grant processing and administration, including tax and state reporting

5% of net investment assets must be distributed through grants to public charities (and other approved recipients) annually

Subject to a 1.39% excise tax on net investment income

Foundation and managers subject to strict rules and penalties regarding self-dealing, excess business holdings and investment restrictions

Potentially limited access to investment managers or products

This is by no means a comprehensive list of advantages and disadvantage for the two options, but rather a high-level overview to help you start thinking about your choices.&nbsp; Of course, each family’s situation is different, so contact your Warner attorney or Jennifer Remondino (<a href="mailto:jremondino@wnj.com">jremondino@wnj.com</a>&nbsp;or 616.396.3243) to discuss how these options are appropriate for your family’s situation and philanthropic goals.

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Legacy Matters

Private Client and Family Office

Executive Partner

Jennifer L. Remondino

Trusts and Estates

Do I want a Donor-Advised Fund or a Private Foundation?

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Do I want a Donor-Advised Fund or a Private Foundation?

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