Donor-advised funds (DAF) have become increasingly popular in recent years for individuals supporting various ongoing philanthropic causes, especially given their ease of achieving a potentially large tax-deductible contribution in any one given year but then allowing for the payout of possibly many different underlying charitable donations to occur over time (see “Hassle–Free Philanthropy”). For example, maybe someone gets more taxable income than expected late in the year, and then wants to donate some of that new wealth but doesn’t have sufficient time to do any related philanthropic research before year end. Instead, they can fund a DAF, get that possibly generous current-year tax deduction for the fair market value of the gift (if itemizing), and then take their time to decide how to distribute (or grant) the funds over time. Oftentimes, though, many DAF donors want to then help special unique causes or projects, or new charities that have not yet received IRS approval to function as a qualified 501(c)(3) organization; in turn, this can result in such targeted support being rejected or delayed, causing frustration for the donor and recipient charity alike. This is where “fiscal sponsorship” can be helpful.
DAFs are required to make sure that all grants go to qualified charities, and thus sometimes they can’t complete grant requests (or it might take up to a year or more before they can). This sort of thing does not usually happen to well-established charities like the local museum or symphony, but rather the new, small “mover and shaker” type charitable entity, or perhaps something that will be more short-lived and thus not worth the effort of becoming a standalone qualified charity. A fiscal sponsorship involves an existing 501(c)(3) nonprofit offering to provide its tax-exemption and associated benefits to another group (the sponsored partner), usually a charitable project. The project should generally be aligned with the overall mission of the sponsoring charity. Frequently, these projects are small, temporary, community-based activities and it makes little sense for them to try to formally incorporate at the state level and then apply for IRS 501(c)(3) status for a project that might wind down in just a few years. Or, it’s a new charity, struggling to get going and needing support but possibly having to wait a year or more just to get incorporated and receive an IRS letter of determination (all the while not getting direct DAF grants because they simply aren’t allowed to receive them).
Fiscal sponsorships are a great way for temporary or smaller charitable projects to operate with most of the same benefits available to organizations with 501(c)(3) status. If properly structured, all parties can be well served. Donors to the project direct their grant to the sponsor (to meet the required grant qualifications of the DAF), and the sponsor then manages those funds on behalf of the project, typically for a fee. The sponsoring charity will not directly operate the project, but it is responsible for reasonable oversight and for assuring that the activities of the underlying projects fulfill their charitable purpose. This whole arrangement reduces the project’s costs, conserves its resources, reduces duplication of personnel, and simplifies organizational function. If done well, a fiscal sponsorship acts as a testing ground for a new idea or a new nonprofit, while utilizing the administrative resources of the sponsor. Indeed, in many cases, fiscal sponsorship can offer a valuable alternative to starting a nonprofit. It is a practice that has evolved as an effective means of supporting new charitable initiatives, whether temporarily or longer term.
Articles and Commentary Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA. For disclosures, including additional information on credential designations of SHGA representatives please see our Form ADV Part 2A and 2B Disclosure Brochures, which can be obtained by clicking here.
Video Presentations All video presentations discuss certain investment products and/or securities and is being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect SHGA's or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
