Granting money from your donor-advised fund is one of the best feelings in the world. You are quite literally making the world a better place through your generosity.
But sometimes – especially if you have just opened a new donor-advised fund – understanding where you can and cannot make a grant is not crystal clear. The Greater Kansas City Community Foundation is here to help. In this blog, we will walk through some of the issues our philanthropic advisors tackle most frequently when donors use their donor-advised funds to make grants.
The first question is usually “where can I grant?”
- Public charities in the United States. The Community Foundation will verify that the charity you select is in good standing with the IRS.
- Governmental entities. You can grant to governmental entities with your donor-advised fund when the funds will be used for a public purpose, like building or improving a public park.
- Religious organizations. Organized religious groups earn charitable tax status by serving their communities.
- International organizations. You can donate to global charities operating from a base in the United States or to charities that fund other overseas charities. Grants made to international charities not operating in the United States may require additional research and due diligence prior to grantmaking.
The issues donors face when using a donor-advised fund start to become more confusing when nonprofit and charitable organizations bundle items of value into a sponsorship. For these, our philanthropic advisors listen closely to understand the benefits being offered.
Grants must not provide more than an incidental benefit to the donor. The term “incidental benefit” helps define the benefit allowed under the law that may naturally be included in the sponsorship package that donors are likely to see when supporting a cause. Distributions that involve tickets, tables at charitable events, goods and services bought at charitable auctions, and priority seating at athletic events can be challenging to navigate, so they deserve a deeper dive here.
- Memberships. You may use your fund to cover the cost of a membership if the charity confirms that the full cost is 100 percent tax deductible. You may also use your fund to cover the cost of a membership if your grant suggestion states that you waive the more than incidental benefits related to the membership. Incidental benefits associated with memberships that donors can take advantage of using your donor-advised fund include things like free admission to exhibits, discounts on parking or gift shop items, invitations to members-only exhibits or events (but not the entry fee to the exhibits and events), and the inclusion of gifts like calendars, key chains and coffee mugs.
- Events with tickets, tables, and sponsorships. Nonprofit organizations use event sponsorships as a major fundraising component, and they can be both successful for the organization and fun for attendees and supporters. But the full cost to attend events (both the tax-deductible and non-tax-deductible portions) must be paid from outside of your donor-advised fund. You may pay any remaining sponsorship costs from your fund, as long as you do not receive more than an incidental benefit in return. The full cost of the tickets or table must be purchased separately outside of your fund. A logo or name recognition in event materials is not considered more than an incidental benefit. Remember, your philanthropic advisor can help you calculate the portion of the event sponsorship that can come from your fund based on the benefits received. Here is an example of what you can pay from your donor-advised fund for an event: A $5,000 event sponsorship includes a table for 10 and your name or logo in event materials. If the lowest ticket price to attend the event is $100, you will pay $1,000 for the table personally from your bank account ($100 × 10 seats at the table) and you can use your donor-advised fund to cover the remaining $4,000.
- Scholarships & tuition. You may use your fund to support a scholarship program administered by a 501(c)(3) public charity or educational institution, but you may not earmark dollars to assist yourself or a specific individual.
- Athletic funds. You may use your fund to support a college or university athletic program if your grant suggestion states that you waive all benefits, including priority seating at athletic events, ticket rights or points.
- Pledges and Commitments. You may use your fund to fulfill commitments to 501(c)(3) public charities. However, Treasury and the IRS prohibit using the term “pledge” on grant checks or related correspondence. Instead, please reference “donation” or “gift” in your grant suggestion.
- Donations in honor of someone. You may make a contribution to a 501(c)(3) public charity or religious institution in honor of an individual as long as the charity exercises complete discretion and control over the donation.
Again, when considering grants that may have more than an “incidental benefit” to the donor, consult your philanthropic advisor for guidance.
Can donors make anonymous gifts from their donor-advised funds? Yes! Anonymous grants are also an option, even though the money is coming from your charitable fund. All anonymous gifts must also follow the rules discussed above.
Contact Your Philanthropic Advisor
Our philanthropic advisors are trained and certified experts, ready to answer your donor-advised fund questions to help you maximize your giving.