Donors Put GR Foundation To Work

October 22, 2004
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GRAND RAPIDS — He bought the business as a young man from his father.

Decades later, he sold it to his sons, leaving himself with a considerable nest egg that he wanted to put to use in the community.

His solution: forming what's known as a donor-advised fund with the Grand Rapids Community Foundation.

The fund allowed him to steer a portion of his wealth accumulated over a lifetime to the variety of charitable causes he wanted to support in retirement and do it without incurring the administrative burden of forming his own private foundation.

"They focus on the altruism … so they create a fund that keeps their memory and their asset and their intent intact," said Lon Swartzentruber, GR Community Foundation's donor relations director. He cites the story of the former owner of a West Michigan manufacturing firm who formed a donor-advised fund a few years ago.

Donor-advised funds are billed as a convenient, flexible estate planning tool for people who want to put their money to use to benefit the community.

Such funds cost less to establish and are easier to administer than private foundations, said Molly Parker, vice president of development for the foundation.

The foundation has seen an increase in recent years in the number of people creating donor-advised funds or converting their private family foundation to a donor-advised fund, Parker said.

Donor-advised funds, in fact, are the fastest growing tool used by living benefactors who give to the foundation each year, Parker said.

"They're just such a great tool and a better alternative," she said.

And with a donor-advised fund, a benefactor gets to access the resources of the Community Foundation for administering the fund and researching which causes and charities to support, Parker said.

They get tax benefits as well, reducing their income taxes and capital gains taxes by reducing the size of their assets and — when they die — lowering the inheritance taxes on their heirs, she said.

In establishing a donor-advised fund, a benefactor makes a gift to a foundation — either through cash, a retirement plan such as an IRA or 401(k), securities or some other method — and retains a direct role in how the earnings from their contribution are annually distributed.

The foundation then manages the money and works with the donor to target contributions. The foundation even does the due diligence on the recipient organizations in identifying groups and causes that match the donor's goals.

In the 2004 fiscal year, the foundation administered 65 donor-advised funds totaling a collective $37.8 million.

That compares with 56 funds totaling $29.4 million in 2003 and 31 funds with $26 million five years earlier.

Individual fund balances in 2004 ranged from as small as $46,000 to as large as $3.8 million.

Since 1990, donor advisors working through the foundation have made an aggregate exceeding $7.7 million in gifts to nonprofit organizations, with $1.2 million in grants coming in fiscal 2004.

The foundation has put a greater emphasis on donor-advised funds when working with a potential benefactor.

Donor advised funds have become a useful tool for the foundation to use in offering potential benefactors options on how to manage and direct their gift, Swartzentruber said.

"A lot of what we do is helping to educate people to make wise gift-giving decisions," he said.

"It all comes down to the core mission of the Community Foundation, which is to help manage and build our community endowment and strengthen the lives of people."    

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