Schwab program targets private foundations

Schwab Charitable Fund today launched a service that helps organizations determine if they want to convert from a private foundation to a donor-advised fund.

The Private Foundation Conversion Service was designed to help financial advisers who work with foundations determine whether the conversion would be beneficial.

In the past two months, Schwab Charitable, a national donor-advised-fund organization, has discussed its services with 29 private foundations, compared with about two inquiries in past years, said Kim Wright-Violich, president of Schwab Charitable, which had $1.9 billion in assets as of Aug. 31.

More foundations are considering the transition because the value of the assets that they hold has dropped, they are struggling to cut costs, and they see a donor-advised fund as a way to do that, Ms. Wright-Violich said.

“Our fund has one umbrella organization that has one infrastructure that spreads fixed costs across 12,000 different accounts,” she said. “The donor-advised fund takes care of all the record keeping, due diligence, compliance and management of the fund.”

Contributions to the Schwab fund dropped to $482 million from Jan. 1 through June 30, compared with $887 million a year earlier, a 45% decline, according to Schwab Charitable, an arm of The Charles Schwab Corp.

In addition, there are tax advantages to participating in donor-advised funds, Ms. Wright-Violich said. For instance, donor-advised funds aren’t subject to an excise tax, but private foundations are required to pay the tax.

Contributors to a donor-advised fund receive a charitable deduction for cash of up to 50% of their adjusted gross income and 30% if they give appreciated securities. By contrast, the charitable deduction for a private foundation’s cash gift is up to 30% of gross annual income and 20% for appreciated securities.

“And if you want to give real estate to a private foundation, your charitable deduction is equal to what you paid for it” if the donation is made through a donor-advised fund, Ms. Wright-Violich said. “But a real estate donation to a donor-advised fund is given a deduction of the current fair market value.”

E-mail Sue Asci at [email protected].