Four Key Questions to Ask When Advising Your Clients on Charitable Fund Types

Invested Endowment Funds

MCF has a variety of invested endowed fund options available.

Donor Advised Endowment Funds

Our donor advised endowments are designed to facilitate long-term growth while providing a sustainable funding source for charitable giving. When someone establishes a fund, they can direct us to invest the fund assets in one of our two investment portfolio options: a general diversified portfolio or an environmental, social and governance (ESG) portfolio. Each year, a specified amount (typically 4% to 5% of the average fund balance over the previous 20 quarters) can be used to make distributions to 501(c)(3) organizations. (This is referred to as our Total Return Spending Policy.)

Donors recommend which organizations they would like to receive distributions, and at what amounts. These recommendations are then presented to MCF’s Board of Governors for review and approval. Advisory privileges for these funds may be passed to others or successive generations, creating a permanent legacy of giving.

Donor Designated Endowment Funds

Our donor designated endowment funds are also designed to facilitate long-term growth. Like donor-advised funds, the assets of these funds are invested either in our general diversified or ESG portfolio, and a percentage of the average fund balance is available for distribution each year. However, unlike donor advised funds, these funds are set up to make annual distributions to specific 501(c)(3) organizations designated by the donor at the time the fund is established.

Field of Interest Endowment Funds

Field of interest endowment funds function similar to donor designated funds, with two significant differences:

1. Instead of designating specific 501(c)(3) organizations as recipients of distributions from the fund, donors designate specific fields of interest they would like their fund to support (e.g., the arts, education, the environment, etc.).
2. MCF’s Community Impact team (not the donor) selects grant recipients that are doing projects in the specified field of interest.

Field of interest funds are a great way to ensure that resources remain available to support priority opportunities in a particular field as they evolve into the future.

Community Impact Endowment Funds

These funds also are like donor designated funds in how they are invested and how the available distribution amount is determined. However, unlike donor designated funds, each year the available distributions are used to support MCF’s Community Impact grantmaking program. (Click here to review a list of recent grants made possible for our community through these funds).

Scholarship Endowment Funds

These funds allow donors to establish a sustainable funding source for a scholarship that is meaningful to them. This could be an existing scholarship or a new scholarship they create to honor their legacy or that of a loved one.

If a donor decides to create a new scholarship, they typically designate the scholarship committee at a particular high school, postsecondary educational institution or nonprofit organization to select recipients based on the donor’s scholarship criteria. Once recipients have been selected, MCF disburses the scholarship awards directly to the recipients’ school. As with our other endowed funds, donors may direct us to invest the fund assets in our diversified or ESG investment portfolio, and a percentage of the average fund balance (typically 4% to 5%) is available to fund scholarships each year.

Maximum Giving Funds

The assets of these funds are invested in a specialized portfolio with a 10-year horizon, and donors can recommend distributions totaling up to 20% of the fund’s balance each year, as long as the fund maintains a minimum balance of $50,000 during its initial 10 years. As with all MCF funds, all distribution recommendations submitted to MCF’s Board of Governors for review and approval.

Passthrough Funds

Donor Advised Passthrough Funds

Our passthrough funds provide donors with the opportunity to recommend distributions up to the total balance of the fund, on their own timeline. Unlike our endowment funds, the fund assets are not invested. As with our endowed funds, distribution recommendations are subject to review and approval by MCF’s Board of Governors.

For more information on these fund types, as well as the fees associated with them, please see our Donor Advised Fund Options summary.

1. “Do you want to make a gift during or after your lifetime, or both?”

Some donors prefer to start giving during their lifetime so they can see the impact of their gift, and then supplement that with a legacy gift upon their passing. Other donors prefer to begin their charitable giving with a legacy gift. The timing of a donor’s gift may have practical implications on which type of fund will best meet their charitable giving goals.

Donors interested in lifetime giving may want more flexibility in recommending distributions from their fund. They also may want the ability to designate a secondary or successor advisor for their fund as a way to involve the next generation of their family in their charitable giving. For these donors, a donor advised endowment fund, a donor advised passthrough fund or a maximum giving fund may be good options.

Donors interested in postponing their charitable giving until after their death or those interested in lifetime giving who do not need flexibility in recommending distributions may find a donor designated fund, a Field of Interest fund, or a Community Impact endowment fund preferable.

2. “How will you fund your gift?”

If your client plans on using lifetime transfers from their IRA to establish or supplement their fund and wants those contributions to be treated as qualified charitable distributions (QCDs), they should look at options other than donor advised funds (for example, donor designated funds, field of interest funds and community impact endowment funds). You can learn more about QCDs here.

[NOTE: Regulations proposed in November 2023 would require additional fund types to be treated like donor advised funds if passed, so it is possible that the QCD-eligible fund options may change. This makes it even more important for donors to consult with their tax advisors when they establish their fund to confirm that it is eligible to receive QCDs.]

3. "How much would you like to initially contribute to your fund?"

The initial contribution amount required to establish a fund depends on the type of fund. As shown on the Donor Advised Fund Options summary, our minimum initial contribution requirements range from $1,000 for a Donor Advised Passthrough Fund to $100,000 for a Maximum Giving Fund or a new Field of Interest Fund.

4. “What is your timeline for making distributions from your fund?”

While endowments are established to provide perpetual and sustainable support for a donor’s charitable giving, maximum giving funds can be a great fit for people who want to invest their fund assets while making distributions over a shorter period. For donors who value total flexibility in when and how much they give from their fund, donor advised passthrough funds can be a great option.