Guest Blog: Thinking of creating a charitable foundation? You might really want a donor advised fund.

Have you been thinking of setting up a charitable foundation?

Maybe you’ve come into an inheritance or sold a business. Or maybe you’re just looking for a more intentional way to structure your charitable giving.

First off, well done to you. Anyone who even considers giving away a portion of wealth to help others deserves a hearty pat on the back. On behalf of society, thank you.

But is a formal charitable foundation the best option for you? It’s not the only option out there and asking yourself these three questions will help you figure out if it’s really the best fit for your needs.

1) Are you prepared for the set-up and maintenance fees? Charitable foundations need to be registered with the Charity Commission and then submit annual reports. You’ll likely need to hire a professional to help you, meaning just set-up fees can run into the thousands of pounds. All of this comes before you’ve given a penny to someone who really needs it.

2) Are you happy for your giving to be on public view? Because charitable foundations are required to keep public records, anyone could see who you are and who you’re giving to. You may not think this is too important but remember that it also means people could start to ask you directly for donations.

3)  How do you feel about administrative duties? As the head of a charitable foundation, you’ll need to submit regular reports to the Charity Commission, as well as manage the organisation’s assets and grant making. Many private foundations get professional help with these duties, but that costs money and doesn’t excuse you completely from a fair share of paperwork.

If this all sounds like too much, don’t despair. Another option is a Donor Advised Fund, or DAF.

DAF’s are very popular in the US, and are increasingly used here in the UK by people who want a straight-forward, tax-efficient way to give.  Here are some of the advantages:

• They’re very easy to set-up and manage. A growing number of charities and for-profit organisations are offering DAFs, which are essentially charitable giving accounts. Once you’ve set yours up (usually online) and added funds, that money becomes the property of the DAF and must be used for charitable giving. You get the tax relief from your gift to the DAF straight away, but you can take your time deciding which charities to gift to.

• They can help maintain your privacy. When you donate to a charity through your DAF, the money comes from your DAF, not from you. So, giving anonymously is still very much an option.

• They can be part of a family giving strategy. Many people choose to establish charitable foundations because they want to involve younger generations in family philanthropy. It’s true that charitable foundations can be named for a family or loved one (“The Connor Family Foundation,” for example), but as described above, they are also a fair amount of work.

Children and young adults can still be involved in family giving through a DAF, just less formally. Families can research issues and pick charities they want to support together. DAFs can even be passed down in wills through some basic estate planning.

Before jumping into the process of starting a charitable foundation, ask yourself a few questions about how you want to structure your giving, and how much work you want to put into it. In many cases, a charitable foundation will be the right choice for you and your family. Just remember that you have options, including donor advised funds.

Whatever you decide, be assured that your first decision—to make charitable giving a priority in your life—is one that you are unlikely to regret.

by Lauren Janus of Thoughtful Philanthropy