Philanthropy
Three Vehicles for a Vision
Jay Steenhuysen
12/01/2003

Mary and David Collins wanted to make a difference in the lives of the children of their community. Mary, chief administrative officer, and David, chairman and CEO of Reston, Virginia-based Learning Tree International, a global information technology training company, were dedicated to improving education, but they wanted to do more than give passively to an existing charity. They had very specific ideas and wanted to be involved in setting the charitable organization’s goals, as well as in deciding how to carry them out. But they also wanted to bring the expertise of friends and community members to bear.

Two years ago, when the Collinses decided to start a new education program, they decided that rather than employing the family foundation they set up after their company went public seven years ago, they would use a different type of vehicle, called a supporting organization. Supporting organizations are trusts that are tied to specific charities. They require their sponsors to bring in (and cede control to) non-family board members; this can endow them with a wider range of expertise and governance flexibility than family foundations, while lessening the decision-making and administrative burden on the philanthropist.

The Collins’ supporting organization operates Learning Tree Farms, which provides free educational programs on a 2,000-acre farm in northern Virginia. Working within parameters set up by the local school board, Learning Tree Farms helps children from the 4th through 11th grades meet school education requirements. It offers programs year-round about the Civil War, nature, architecture, 18th-century frontier life, and even the explorations of Lewis and Clark. The home of John Marshall, the fourth Chief Justice of the U.S. Supreme Court, is on the farm and is a key component of the programs. One of Marshall’s descendents, Thomas Marshall de Butts, is on the organization’s board.

The supporting organization—along with the traditional family foundation and a more passive structure called a donor-advised fund—is one of the main philanthropic vehicles available to families. (See charts on pages 166 and 168.) Utilized separately or in combination, these three platforms allow philanthropists to manage their charitable gifts in a targeted, flexible, and financially sound manner.


Financial advisers cite the full exploitation of tax advantages of their giving as one reason families are turning to more than one philanthropic vehicle. "Once clients have assured their lifestyle and provided enough for their families," says Kenneth J. Anderson, a founder and partner at Quintile Wealth Management in Los Angeles, "they want to give more money than their adjusted gross income will allow for a deduction. Increased giving requires additional vehicles to capture all the tax benefits. You need to consider all these vehicles to capture the full economic benefit of your giving."

But the underlying charitable activity itself and the amount of control we wish to exercise will be as important to our decisions as the tax and financial advantages. "Selecting which vehicle is not an effort to seek tax benefits, but it is important to be tax efficient," Anderson says. "Goals come first."

A private foundation differs from a supporting organization mainly at the board level. The board of the Collins’ private foundation is comprised solely of family members, with the exception of the attorney. The board of their supporting organization includes community members and a longtime friend. The required involvement of non-family members is meant to broaden the range of ideas that will drive the progress of Learning Tree Farms.


While private foundations do reserve more control for the philanthropist, a supporting organization delivers superior tax advantages, according to Anderson. The limits of deductibility are higher for a supporting organization than those for a private foundation, and the required annual distribution is much lower. The IRS provides a break for philanthropists who give up a measure of control by including non-family members on their board.

Donor-advised funds present a compelling option to those of us for whom anonymity takes priority over control, and they are especially well suited to making smaller gifts. Offered through local community foundations or sponsored by for-profit financial institutions, donor-advised funds do not require philanthropists to invest time or pay administrative costs, and are designed to accumulate funds for future giving. These funds are also unique in that they allow a philanthropist to make a one-time contribution without falling prey to that charity’s mailing list: The fund’s staff researches the charity and dispenses the gift.


These funds offer economic benefits similar to those of supporting organizations, such as a public-charity deduction for contributions, but they do not carry the administrative burdens of private foundations and supporting organizations—namely, the tax and state regulatory filings—thereby significantly reducing their operating costs. All the investment and management expenses are covered by a fee that is based on a percentage of assets in the fund. This can range from 0.8 percent to more than 2 percent, depending on the fund. At the same time, these instruments have the disadvantage of lacking focus: All the gifts made by donors are typically comingled, and so the use of funds may not completely match the goals of any one individual. Philanthropists can only advise the board where to focus its effort, though it should be pointed out that their wishes are, in most cases, respected.

"Selecting which vehicle is not an effort to seek tax benefits, but it is important to be tax efficient. Goals come first."
Like the Collins’ combination of the foundation and supporting organization, some philanthropists have used both donor-advised funds and foundations with good effect. One investment planner with a $700 million net worth found this two-pronged approach best suited his needs. "I did the foundation first," he says. "I did not know anything about donor-advised funds. We liked the private foundation. It was both charitably and educationally inclined for our kids. It became a place where we were able to hold quarterly family meetings." He later set up a donor-advised fund, drawn by the opportunity to give anonymously in some circumstances—indeed, his children are not aware of the fund’s existence. "We use our private foundation when we want to personally touch an organization as a family with our efforts and also with our funds," says the investment planner. "The tax benefits were not a deciding choice in starting the donor advised fund. However, the absence of expenses for the donor-advised fund has become an additional benefit."

Some have worried that the concurrent use of these different vehicles may postpone the delivery of funds to the charitable organizations. But a combination may actually mitigate fluctuations in the philanthropist’s donations over the course of many years, facilitating consistent giving. "For the charity," the investment planner says, "long-term consistent giving is better than receiving a big check every few years."

Related Charts
  Strategic Overview
  The Fine Print

Illustrations by Jim Frazier