If your goal is to ensure that a significant donation is used for the purposes you intend, both now and in the future, there are various ways of doing so without creating a separate foundation. Consider the following:
Making a restricted donation to an existing charity
Large donations are often made with certain restrictions or directions. As a condition of accepting the gift, the receiving charity is legally obliged to respect these conditions. As the conditions are being drafted and agreed upon with the charity, the donor has a reasonable degree of control. However, after the donation has been made, it will not be possible to change these conditions, although the charity can be granted the right to change these conditions.
It is strongly recommended that you discuss your proposed conditions in detail with the receiving charity before making the gift. This will ensure that when the conditions are drafted, you will accomplish what you intend. It will also ensure that the charity understands, accepts, and supports the conditions. For example, if you direct the income from your donation to support a specific charity program, you can ensure in discussions with the charity that they are intending to continue the program, have other adequate funding in place (or that your funding is adequate on its own) to continue the program, and so on. The charity can also help you identify alternatives for future funding if the program ends (for example, if it achieves its goals).
An advantage of this approach is that an existing operating charity will likely have the expertise and insight to help you direct your funds where they will achieve what you want them to. It will also likely have competent and committed staff or volunteers who can make sure that your gift continues to be well used into the future.
Creating a donor-advised fund
Creating a donor-advised fund has some similarities to creating your own private foundation, but without the administrative, regulatory, managerial, and operational burdens. Donor-advised funds are generally operated by public foundations or charitable organizations as a means of encouraging philanthropy and support for certain types of causes. The public foundation deals with the burdens and spreads the cost of doing so across many donors. In this way, it can also afford to develop expertise in these areas that a single private foundation may not be able to. For example, by pooling funds from many donations, it becomes more cost-effective to engage professional investment advisors to manage these funds.
After making the donation, the donor retains the ability to recommend (but not legally control) to whom grants are given by the fund manager. The board of the recipient charity must exercise ultimate control, of course, but within that constraint can consider the recommendations of the donors.
One fast-growing category of donor-advised funds is community foundations. Though generally focused on supporting charitable activities within a specific community, there need not be community-based restrictions on giving. For more information, or to locate a community foundation near you, visit Community Foundations of Canada.
There are several advantages to this approach. Creating a donor-advised fund allows you to:
- avoid the administrative and other headaches of operating a foundation;
- enjoy professional/expert services (such as investment management and detailed reporting) and low costs (by spreading fixed administrative costs over several donations);
- retain control over future grants (within broad limits); and,
- retain naming privileges over the fund created.
Donating to another foundation which you trust
If you simply want to make sure that the funds you donate are being intelligently and effectively used, without directing their specific use, making an unrestricted donation to a foundation whose work you respect and trust may be the route to take. A good example of this, in the United States, was Warren Buffett's multi-billion dollar donation to the Bill and Melinda Gates Foundation.