But starting your own foundation requires time and money, and you’re a bit short on both. Fortunately, you have two good options for starting your own charitable fund: investing either in a donor-advised fund at a mutual fund company or in a community foundation.Timothy McIntosh, a financial planner in Tampa, typically doesn’t begin talking about starting private foundations with clients unless they have $5 million or so to commit.
“Commit,” by the way, is the operative word here. Once you donate money to a foundation, it’s gone forever. “You have to be sound financially” before you give away your money, McIntosh warns. “The finality of the gift is the biggest topic with my clients.”
So think carefully about how you want to structure a charitable organization and make sure that you won’t wish you had left more to the kids. But if you’re OK with parting with your cash, you can get others to handle most of the work.
Let’s start with donor-advised funds from mutual fund companies. With a contribution of as little as $10,000, a donor-advised fund will act like your own charity, but the fund companies take care of much of the administration and management. The three giants are Fidelity Charitable Gift Fund, Vanguard Charitable Endowment Program and Schwab Fund for Charitable Giving (see chart).
When you donate money to a donor-advised fund, you can deduct your contribution immediately. Your account will be treated as an individual charity, complete with its own name.
You recommend which charities will get your money, how much they’ll get and when they’ll get it. You can donate only to IRS-approved charities. (So the Charitable Fund to Benefit Me won’t pass muster.)
You can start your charitable fund with cash or securities. Appreciated securities are better; you can deduct the market value of the securities at the time of the donation and sidestep any taxes on your gains. About 70% of the contributions to the Fidelity Charitable Gift Fund are securities, says David Guinta, president of the fund.
Not only can you advise who gets the money, you can also direct how it’s invested. Fidelity offers 11 investment options. Vanguard offers six. Discount brokerage Charles Schwab has eight.
Another way is to start a charitable fund through a community foundation. For as little as $5,000, some community foundations will let you start a charitable fund. They take care of the paperwork and much of the day-to-day management of the money.
Indiana’s Kosciusko County Community Foundation, for example, will let you start an endowment for $5,000, The county (population 76,072), has more than 200 funds and $27 million in assets, according to Suzanne Light, the foundation’s executive director.
Indiana has 81 community foundations, thanks in large part to the Lilly Endowment, which was formed in 1937 by descendants of Eli Lilly, founder of pharmaceutical giant Eli Lilly. The Lilly Endowment matched Indiana community foundation donations and otherwise encouraged them.
You don’t have to live in Indiana to start your own fund at a community foundation. You can find others near you at the Council on Foundations’ website.
You might not be able to peel off $1 billion, or even $1 million. But your gift could keep giving long after you’re gone — and possibly as long as the Bill & Melinda Gates Foundation.
