The Bill & Melinda Gates Foundation Turns 20

Consider a donor advised fund if you can’t start your own foundation

The Bill & Melinda Gates Foundation was launched in 2000 and over the past two decades, has given away almost $54 billion.

In their Annual Letter, the Gates examine what has worked well, what has not worked so well and how they plan to give away the next billion.

From their 2020 Annual Letter, which can be read in its entirety at gatesnotes.com.

Why We Swing for the Fences

“When we started our foundation 20 years ago, the world was, in many ways, very different from the one we live in now. It was before 9/11, before the Great Recession, and before the rise of social media.

Then, as now, there was no shortage of worthy causes, and there was a good argument to be made for investing in many of them. We’d known for a while that we wanted to give away the majority of our wealth from Microsoft and use it to make people’s lives better. The challenge, of course, was how to do that in a meaningful and high-impact way.

For the last 20 years, our foundation has focused on improving health around the world and strengthening the public education system in the United States because we believe that health and education are key to a healthier, better, and more equal world. Disease is both a symptom and a cause of inequality, while public education is a driver of equality.

We know that philanthropy can never – and should never – take the place of governments or the private sector. We do believe it has a unique role to play in driving progress, though.

At its best, philanthropy takes risks that governments can’t and corporations won’t. Governments need to focus most of their resources on scaling proven solutions.”

Albert Einstein and Donor Advised Funds

“It is every man’s obligation,” said Albert Einstein, “to put back into the world at least the equivalent of what he takes out of it.” If you agree and wonder about starting a private foundation to control spending of your charitable donations, you might have a better tool: a donor advised fund.

Starting a private foundation can involve substantial start-up and administrative expenses – such as annually filing of the Internal Revenue Service Form 990-PF, a Return of Private Foundation – not to mention the major time commitment.

A donor advised fund, on the other hand, is a charitable giving vehicle where an individual, family or corporation makes an irrevocable, tax-deductible contribution of personal assets to a charity. The donor can any time thereafter also recommend grant distributions to other qualified charities.

In plain English, you give money to this account to support your favorite charities now and in the future.

You can take a deduction on your tax return in the year the charity received the money. The account can also take your donations of marketable securities such as stocks and bonds, and even donations of hard-to-sell real estate. If your asset appreciated in value above its original cost, you also avoid the capital gains tax.

The Rise of the Donor Advised Fund

According to the 2019 Donor Advised Fund Report from the National Philanthropic Trust:

  • Charitable assets in donor-advised funds reached $121.42 billion
  • Philanthropists recommended grants to charities from their donor-advised funds totaling $23.42 billion last year
  • Contributions to donor-advised funds totaled$37.12 billion last year
  • The number of new donor-advised fund accounts jumped sharply, bringing the total number of individual donor-advised funds to 728,563

Obviously growing in popularity, DAFs bring numerous benefits. First, you do not need to be Bill and Melinda Gates to create a DAF but instead can start with as little as $5,000. DAFs also often have a minimum additional contribution (such as $500) and suggested grants also frequently carry a smaller minimum.

These funds also allow you to take a tax deduction in one year and then decide later on the best choice of charities. You can make a single contribution to the fund and still benefit multiple charities while only requiring one substantiation letter documenting the deduction. Your accountant will thank you.

Another benefit: creation of a legacy versus providing a one-time gift. You can create a family DAF, allowing your children and grandchildren to get involved evaluating charities – potentially fostering charitable spirit at an early age. Your family can also name successor advisors to your account.

You can choose between many DAFs, but seek out ones with low annual fees and sensible distribution policies. Further, look for DAFs that accept donations of all different assets, especially helpful if you have appreciated real estate or art to donate.

People establish DAFs for a number of different goals – some financial, some philanthropic, most centered on family.

Keeping the Family Together

Consider a conversation with Mary, the widowed matriarch of her family with four children and 10 grandchildren. She created a DAF:

“My husband and I started our fund primarily for the tax advantages and the flexibility in giving to multiple charities,” she said, “but I think that my biggest reason is for keeping my family together once I am gone. Though my children and grandchildren live in different places, it gives me peace of mind in knowing that the fund will keep my family connected in a meaningful way.”

So, if you’re charitably inclined, wish to get a tax benefit this year, and want a voice in which charities benefit in the future, a DAF may be your best option to fulfill a very important obligation.

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