Building a Philanthropic Legacy

Editor’s note: This article originally appeared in the May 22, 2019, edition of the Northfield News. by Mike Krance, Executive Director, Northfield Shares

Within the past few weeks, I’ve had the honor of processing two grant distributions from Northfield Shares funds on behalf of donors. One was a $2,500 grant to a Twin Cities-based nonprofit through a donor advised fund. The other was a $9,000 distribution from the Pat Lamb and Ele Hansen empowHER Fund.  Endowment funds and donor advised funds can help you fulfill your philanthropic objectives and generate tax benefits—all while making an impact on the community.

We’re only five weeks past tax day, but many people are already wondering how they can cut their tax bill next year.  If you will have a taxable event—such as a large inheritance or work bonus, appreciated stock or sale of a business—within the next year, consider creating a named endowment fund or donor advised fund.

Endowment Funds retain the principal and only the income is spent. Since the principal is never spent, your generous support continues in perpetuity. Three of the most common endowment funds are undesignated, field of interest and designated. Many people establish endowment funds as part of their estate planning process.

  • Undesignated Funds—This option leaves the responsibility for grant distributions to the organization that owns the assets, usually a community foundation. In the case of Northfield Shares, undesignated funds provide our Grants Committee with the greatest flexibility for using monies where they are most needed in relation to the grant applications received from local nonprofits.
  • Field of Interest Funds—Donor designates the general area in which grants should be made, such as education. At Northfield Shares, for instance, the Nutting Beautification Fund supports beautification efforts in Northfield. It’s helped fund a variety of projects through the Northfield Garden Club/Northfield in Bloom—everything from hanging flowers on Division Street and on bridges to pollinator gardens.
  • Designated Funds—Donor selects the specific charity or charities that will receive the annual grant distributions. For instance, the Pat Lamb and Ele Hansen Charitable Fund at Northfield Shares has designated eight different charities that will receive funds when available.

Donor Advised Funds are like having your own family foundation but without all of the legal and accounting paperwork. You can receive an immediate tax benefit when establishing the fund, but delay any decisions regarding what charities will benefit. Your family can recommend grants to your favorite causes on a schedule that works for you. By researching different nonprofits and determining which to support, kids learn the importance of thoughtful philanthropy and how to most effectively use their grant dollars.

An endowment fund or donor advised fund can also provide a great alternative for people who no longer wish to run a family foundation. Tired of the accounting, paperwork and other reporting requirements, they opt to make ongoing decisions via a donor advised fund or pre-determine how the transferred assets will be used through an endowment.

Whether your philanthropic legacy is short-term through a donor advised fund or in perpetuity through an endowment fund, a named fund can help you fulfill your giving objectives, and make an impact on the community while generating tax benefits.

Talk with your financial advisor, attorney and tax accountant about these options. Northfield Shares is happy to help you during this process in building your philanthropic legacy. To learn more, contact Mike Krance at mikekrance@northfieldshares.org.