Washington County Community Foundation Policy and Procedure on Donor Advised Funds
The Pension Protection Act of 2006 created new requirements and restrictions on grants from Donor Advised Funds (“DAFs”) as well as restrictions on permissible activities of DAFs. It is the policy of the Washington County Community Foundation (“WCCF”) to comply fully with these requirements and regulations, as well as all other applicable requirements and regulations.
A donor advised fund defined under the Internal Revenue Code possesses three characteristics: the fund is separately identified with reference to the contributions of a donor or donors; the fund is owned and controlled by a sponsoring organization such as a community foundation; the donor or persons appointed by the donor expect to have the privilege of providing advice with respect to the fund’s investments, grant distributions or both.
Contributing to a Fund
Gifts to the DAF are irrevocable. The assets of DAFs are owned and controlled by the WCCF. Contributions may be made using cash, publicly traded securities or other property, including closely held stock, partnership interests, real estate, personal property, trusts and life insurance. Contributions are subject to acceptance by the WCCF.
Donors may make contributions using appreciated, publicly traded stock that has been held for longer than a year, to enjoy maximum tax benefits. Contributions of property that may not have immediate liquidity are accepted at the discretion of the WCCF, and subject to completion of our due diligence procedures. Donors considering a gift in any form other than cash should contact the WCCF to discuss its appropriateness and to obtain delivery instructions. See Fund and Gift Acceptance Policy.
Variance Power
All component funds of the WCCF are subject to the WCCF’s variance power (see Fund and Gift Acceptance Policy).
Fees and Minimums
The minimum amount to create a perpetual donor advised fund is $25,000. The WCCF also accepts pass-through DAFs on a case-by-case basis.
The WCCF assesses fees against all its funds to cover the cost of administration and to continue the WCCF’s important work in our community. Fees provide the necessary resources to operate efficiently and effectively, ensuring fiscal responsibility in grant due diligence, donor and nonprofit education, research, and other activities.
Fund Advisors
The initial advisors to the fund are those persons named in the fund agreement. Donors may also designate future advisors to the fund. If at any time there is more than one advisor to the fund, the advisors will appoint a designee and all communications to and from the WCCF will be through the designee. If no designee has been appointed, the WCCF will consider the first advisor named in the agreement to be the designee.
From time to time the WCCF may bring to the advisor’s attention grant making opportunities in which the advisor may have an interest. The advisor is not obligated to recommend a grant for the identified program.
Disqualified Person
As applied to public charities, the term disqualified person includes (a) organization managers, (b) any other person who, within the past five years, was in a position to exercise substantial influence over the affairs of the organization, (c) donors and donor advisors with regard to transactions with a particular donor advised fund, (d) investment advisors to assets of DAFs, (e) disqualified persons of supporting organizations who are also disqualified persons of the supported organization (f) family members of the above (g) businesses they control. Paying excessive benefits to a disqualified person will result in the imposition of penalty excise taxes on the person, and under some circumstances, on the charity’s board of directors.
Prohibited Grants and Activities and Other Considerations:
The Internal Revenue Code prohibits grants to individuals from donor advised funds. Grants many not be issued to individuals, such as scholarships, emergency hardship grants or disaster relief grants, including grants made directly to an organization for the benefit of a specific individual. This includes checks written directly to an individual or checks written to an entity for the benefit of a specified individual. For example, a grant to a university for the benefit of a designated student is prohibited. Grants many not be issued to donors, advisors or related parties.
Grants from DAFs may not be made to charities where a disqualified person, as defined above, is involved. Also prohibited are grants for political purposes or for political campaigns.
Grants may not result in benefits, goods, or services to the donor, the fund advisor, members of their families, or businesses they control. Benefits include the payment of pledges, event tickets, meals, sponsorships, registration fees, discounted merchandise, preferred parking and/or seating, and memberships unless the membership confers nothing of value.
Donors, advisors or any related parties may not receive grants, loans, compensation or similar payments (including expense reimbursements) from donor advised funds.
DAF grants also cannot be used to satisfy all or a portion of a pre-existing personal pledge or other financial obligation of the donor, advisors, or any related parties. Advisors may, however, recommend that a grant be paid out over multiple years, subject to grant approval and annual due diligence.
Permissible Grants
Grants must be for charitable purposes. Advisors to DAFs may recommend grants from the DAF throughout the year to any public charity or unit of government in the United States using the DAF Grant Recommendation Form. See Grantmaking Due Diligence Policy and DAF Grant Recommendation Form.
DAF Grant Review and Approval Process
After receipt of a completed DAF Grant Recommendation Form, WCCF staff shall refer to the Grantmaking Due Diligence Policy to verify that the proposed grantee is qualified to receive a grant from a DAF and that the proposed grant would not require expenditure responsibility. If so, the recommendation will then be forwarded to the CEO and at least one other Officer of the WCCF, who shall approve proposed grants for distribution. Grants from DAFs shall be ratified by the WCCF Board of Trustees at its next regularly scheduled meeting.
The WCCF shall discourage DAF advisors from recommending grants that require expenditure responsibility, but in the case when expenditure responsibility is required, the WCCF shall follow the procedure outlined in the Grantmaking Due Diligence Policy.
Investments
The WCCF has the sole responsibility and authority for investment of the assets of each DAF. Decisions with respect to the retention, investment, or reinvestment of assets and with respect to commingling of assets shall be made by the WCCF’s Investment Committee. DAFs are customarily invested and commingled with assets of other funds of the WCCF and operate under a single investment policy with a primary objective of increasing the purchasing power of endowed funds over time. The WCCF Investment Committee closely monitors investment performance and holds investment managers accountable to specific benchmarks. We also measure ourselves against our peer community foundations.
The WCCF will also accept, on a case-by-case basis, component DAFs that follow a separately managed investment strategy with a third-party investor, provided that the strategy and investor adhere to the Foundation’s Investment and Spending Policy. Such separately managed funds will be considered for a minimum gift of $500,000.
Active and Inactive Funds
A DAF is considered active when there is regular communication between a donor (or named successors) and the WCCF regarding the existence and purpose of the fund. Examples of activity include, but are not limited to:
(1) Regular Grant Recommendations. Donor advisor generally recommends grants at least annually to qualified charitable organizations.
(2) Developing Philanthropic Program. Donor advisor makes a substantial contribution to the DAF and refrains from recommending grants for a given initial period while the fund advisor consults with the WCCF or does his or her own research to determine what types of grants will best meet community needs and his or her philanthropic goals.
(3) Long-term Giving Plan. Donor advisor deliberately reduces the frequency or size of grant recommendation from the fund, for example (a) during his or her working years with the intention of increasing the fund balance to support grant making during his or her retirement (b) a donor advisor wishes to build the fund over time so the donor’s children can make grants later (c) a donor advisor refrains from recommending a grant for a given period because the fund is invested in an illiquid investment. Donor advisor intends to begin making grant recommendations when the investment can be sold at a reasonable price. (d) a donor advisor refrains from recommending a grant for a given period because the fund is underwater. Donor advisor intends to begin making grant recommendations when the fund is no longer underwater.
(4) Project Grants. Donor advisor makes a substantial contribution to a DAF and determines to recommend grants to a specific qualified charitable organization over a period of years so that the donor can monitor how the charitable organization performs, and to consider whether another organization would better achieve the donor’s charitable goals.
(5) Starter Fund. A DAF may need time to build a fund balance to make substantial grants to the community. Therefore, there may be no distributions made until the fund balance reaches an amount stated in the donor advised fund file.
(6) Specific Occasion Grant. Donor advisor refrains from recommending grants for a number of years with the specific charitable goal of recommending a grant upon a specific occasion. Examples include, but are not limited to: (a) Donor is incapacitated with no successor advisor(s) named so the WCCF waits until the donor’s death to distribute the fund according to the donor’s original intent (b) Fund has transitioned to named successor advisors but they are minors and no adult representative is named to represent them. Grants resume when successor advisors are adults. (c) Founders of fund are getting divorced so that grants are suspended until both the husband and wife agree on grants, which may include splitting the fund into two separate funds, one for each spouse to advise or eventually dissolving the fund by issuing grants for the full value of the fund. (d) Grants are suspended during litigation involving the fund, such as the donor has left his/her estate to a fund, but he donor’s children are disputing the bequest. (e) Donor leaves a bequest to a fund and distributions are made periodically to the fund during the estate settlement process, but grants are not made until the estate is fully settled.
A DAF is considered inactive if:
(1) The fund advisor dies or resigns or evidence of his or her incapacity is provided to the WCCF, and if no successor advisor has been named.
(2) All named successor advisors are unable or unwilling to serve as such.
(3) No recommendations are made with respect to grants from the DAF for period of three years and, during such period, the advisor or successor advisor does not reply to the WCCF’s attempts to contact them.
Termination for Inactivity
After determining a DAF to be inactive, as defined above, the Foundation will send a certified letter to the DAF advisor(s) informing the advisor(s) that the DAF will be terminated unless activity, either by making a gift or recommending a grant, is resumed within 60 days of the date of the letter. If the DAF remains inactive after the 60-day period, the DAF will be terminated. If the principal balance of the terminating fund is at least $25,000, the fund will continue to be maintained as a separate named endowed fund for discretionary grantmaking purposes. If the principal balance of the terminating fund is less than $25,000, its assets will become a part of the WCCF’s unrestricted permanent endowment.
Other Termination
Unless otherwise specified in the fund agreement, upon the death, resignation or incapacity of the last advisor to the DAF, the assets of the fund will become a part of the WCCF’s unrestricted permanent endowment. If the principal balance of the fund is at least $25,000, the fund will continue to be maintained as a separate named endowed fund for discretionary purposes or a field of interest, if the donor(s)or successor advisor(s) have specified in writing one or more broad fields of interests for the fund.
Date of Adoption: October 2019; Revised December 2023