#8 - Donor Advised Funds with Eric Anderson

In this episode of the BarryLaw Podcast, Barry Rosenzweig talks with Eric Anderson the Director of Stewardship at the Minneapolis Foundation. The two discuss Donor Advised Funds which allow participants to give to the charities of their choice through a simple and effective system. It’s hard not to fall in love with Donor Advised Funds, with their convenience and flexibility – not to mention the opportunity they provide to send more money to the causes you care about, while paying fewer taxes. 

Eric Anderson, Director of Stewardship, has been working with the Minneapolis Foundation’s donor advisors since 2000. He oversees collaborative efforts Foundation-wide, ensuring that donor advisors experience the best in comprehensive programs and services to help advance their charitable goals. He currently holds volunteer positions with The Minnesota Council on Foundations and the National Council on Foundations (Washington, D.C.) – the Community Foundations National Standards Board. He is a graduate of Augsburg College.

Barry Rosenzweig has been an attorney for over 25 years and is nationally known as a visionary in his profession.   Barry Rosenzweig can be reached at (952) 920-1001 in Minnesota and (480) 227-2203 in Arizona. He can also be reach by email at barry@barrylaw.com or online at www.barrylaw.com.

Transcript

00:02 

In the studio today, we're going to be talking about donor advised funds with Eric Anderson, with the Minneapolis foundation.

00:09

[Intro] 

Welcome to the Barry law legal podcast. Barry Rosenzweig has been an attorney for over 25 years and is nationally known as a visionary in his profession. In each episode, attorney Barry Rosenzweig, interviews lawyers, real estate agents, lenders, and other professionals that bring popular legal related topics into focus for his listeners. So, get ready for an educational and exciting episode. Now here's your host, Barry Rosenzweig. 

00:41 

Barry Rosenzweig: Hello, and welcome to the show. Today in the studio, we have Eric Anderson from the Minneapolis foundation. Hi, Eric.

00:47 

Eric Anderson: Morning Barry. 

00:48 

Barry Rosenzweig: We're going to be talking today about charitable giving and how it can help fund charities. And at the same time, have some tax benefits from it. And I think a lot of people would find a lot of interest out of this because when I first found out about it, I didn't really know it existed. I knew the Minneapolis foundation existed. I just didn't know how I could be involved with it and how it could actually be a benefit to me and my family. So, Eric, tell me a little bit about yourself and a brief introduction about the Minneapolis foundation

01:22 

Eric Anderson: Yeah, I’ve been at the Minneapolis foundation for I always hesitate to say this, but I'd been there for 19 years. That's really such a privilege and a pleasure to do the work that I do because I get to help people be philanthropic. That's just the bottom line. I came to the foundation from the higher education world. I was a college recruiter for my Alma mater Algebra college go Auggie's. And then I went to William Mitchell college of law to be their alumni director. I was there for about 10 years, and then I did a three-year stint at the Minneapolis college of art and design as their alumni director. My primary job at the foundation is to help individuals who have funds with us to put their money out into the community, to help them be philanthropic. That's sort of the bottom line.

02:08 

Barry Rosenzweig: Tell me a little bit how the Minneapolis foundation began and why it began and when it began.

02:15 

Eric Anderson: Right. So, community foundations are, we're grantmaking public charities. So, we are a nonprofit. We get our assets from individuals who have left money to us through their estate plan or have established a donor advice fund while they're living. We take those assets, manage them, and then we help individuals to distribute those dollars out into the community. Currently, the foundation has a nearly $900 million in assets that we manage. We have about 1400 charitable funds. The majority of those funds are donor advised funds, which we'll touch on here and then a variety of other funds, but essentially, we exist to help individuals distribute philanthropic dollars into the community. And the main vehicle is a donor advice fund.

03:06 

Barry Rosenzweig: It's almost a billion dollars of assets. 

03:10 

Eric Anderson: Yes. We're trying. 

03:13 

Barry Rosenzweig: is that money that comes in there from all over the world? Locally?

03:20 

Eric Anderson: Predominantly it's local, that's a distinction about community foundations is that they are for the most part geographically focused. So, there is the Minneapolis foundation. There happens to be the Saint Paul, Minnesota is foundation right across the river. There's the Duluth community foundation, Rochester community foundation. So, they tend to be geographically focused.

03:41 

Barry Rosenzweig: And you had mentioned you have 1400 funds under management. Those are all under the umbrella within your organization.

03:50 

Eric Anderson: Correct. So, we'll have a variety of funds. There's actually about nine different fund types. They're all sort of slight variations on a theme. But as I said, the main one is a donor advised fund. When I'm trying to oversimplify the description of a donor advised fund, I put it this way. You can have a private family foundation and manage it, infested, write the checks, all that kind of thing. Or you could have a donor advised fund and we do all that work and you just distribute the money, and we help you do that. That's sort of a pretty oversimplified distinction between the two, but the nice thing about a donor advised fund is that because we are a 501C3, a nonprofit recognized by the IRS. When somebody establishes a fund and then adds to the fund thereafter, that's a charitable gift. So that, to the extent that that has a tax implication for the person making that gift that happens on the front end, when money is distributed from a donor advised fund that has no tax implications whatsoever.

04:58 

Barry Rosenzweig: As if you are donate directly to any charity. 

05:01 

Eric Anderson: Correct. The thing that's nice about that when you have a donor advised fund, is that you can gift money on the front end and technically speaking, you never have to distribute that money. There's a lot of press these days about donor advised funds and being inactive and all of that kind of thing. That is not the case that the Minneapolis foundation. In fact, we have a policy that says when a fund has been inactive for a period of three years, then they get a call from me. And I say, Hey, remember that you have a fund here. And essentially, you know, why aren't you doing greater good for the community? Let's get active with this fund, that kind of thing. So most of our donor advised funds are very active and distributing into the community, but what some people do find then advantageous once they established a donor advised fund, is that as it relates to tax strategies, they may come to the end of the year and it's like, Oh, geez, I need to give away $5,000, $50,000, a million you know, whatever it is, they can write one check and they've met their charitable deduction. And then they can distribute it thereafter. And I think that's sort of one check, and you get the tax advantage is a real plus.

06:21
Barry Rosenzweig: Without making a rash decision, trying to find out who needs it, who wants it without thinking about it all year and just looking, Hey, I got to get this money out because I get the tax deduction. But at the same time somebody gets a charitable benefit, but I don't have to make any immediate decisions. 

06:38 

Eric Anderson: That's right. Cause we'll get calls at the end of the year. And people will say, I mean, another advantage with a donor advised fund is of course everything is online, and you can interface on our donor portal. But oftentimes people call me and say, you know, who did I give to last year? Or what amount? Or, you know, those kinds of questions. And so, yeah, at year end people like going gosh, who did I give to and how much, and where's that slip. And then you've got to collect all of those receipts from the nonprofits and it's you know; it can be a lot of work. The other thing too, that we do in working with donor advisors is to suggest to them, you know, in that making distributions from your fund has no tax implications whatsoever, you know, sit down in February while you're on winter vacation and do your annual grantmaking or do it in July or do it, you know you don't have to have that be part of the year end rush, because you can do it at any time. 

07:38 

Barry Rosenzweig: And again, like you said, there's no, once it's in the fund, any distributions are no tax implications, because you've already received that benefit sort of speak. And then it doesn't like flip back and say, now that you're taking out of there, all of a sudden, it's taxable. 

07:55 

Eric Anderson: Right. We often share the story of a woman called Emma B Howe, she was kind of an office administrator, all-purpose staff member of this fledgling company that became deluxe. And so, as the company was growing, they couldn't necessarily compensate her. So, they gave her, got a little stock here and a little stock there and she put a little money away here and she never married. She never had any heirs. And when she passed away, she had left the foundation I think it was like $20, $25 million. So, it was sort of the, you know, the millionaire next door kind of story. And that money then has grown and given and will continue to grow and give forever. So, it's great. 

08:42 

Barry Rosenzweig: There is a Lesson to be learned, that's a little separate from the donation is manage your money well. No matter how much you make, how much money you have, manage your money well. 

08:53 

Eric Anderson: Don't discount stock in a fledgling company. You never know, it might be Apple. Some folks were like, yes, I want my money to grow and give forever. Some are like, I want whatever's left to be distributed over 10 years. Some I wanted to split into new funds between my kids or my nieces and nephews or whomever, or there's just, it can do a lot of different things to honor the legacy that you as an individual want to leave behind

09:21 

Barry Rosenzweig: Donor advice funds, is there a minimum to open it?

09:25 

Eric Anderson: Yeah. So, it's $10,000 to establish a donor advised fund. We charge an administrative fee on a fund. So, the administrative fee is 1% of the funds three-year fund balance average. To sort of address, you know, the ebbs and flows of a market or a minimum of $750 annually. 

09:45 

Barry Rosenzweig: The people who donate the money into their fund, do they determine what type of risks are taken on those investments or are they pretty much set by the foundation?

09:56 

Eric Anderson: So, we have five different investment strategies that you as a donor advisor, a donor advisor can choose from. The one that's the most aggressive. And that's not even the right word to use. The one that probably has the greatest equity exposure is called the long-term growth fund. We have a social impact fund, a balanced fund, a money market fund. You can leave it in cash, but it's your decision. Wherever you decide to place your dollars, that goes to a certain set of managers that we engage. So that nearly $900 million that we have in assets is managed by 55, some different financial advisors. The investment strategies and the advisors behind those strategies are determined by the investment committee of the board of trustees. The investment committee is made up of current trustees as well as practitioners in the community. It's folks that have a pretty high profile, a pretty high success rate. There's a lot of debate that goes on at the investment committee meetings about what percentage should be where and those kinds of things. So, it's a pretty robust oversight of our investment strategies. And then, like I said, we distribute those dollars then between 55 different fund managers. And then we have one full time person on staff whose job is to watch the work of those 55 managers. So, there's a lot of checks and balances in place.

11:27 

Barry Rosenzweig: You're an organization that's well known, well trusted, and it just takes things off the table and for people to deal with except decide where they want the money to go.

11:37 

Eric Anderson: Well. And then you get into all of the different programs, services, the value add that we offer to donor advise fund holders. And that's a really extensive list. I mean, so as you know, you can, you know, if you have young people in your life that you want to involve in helping them to be philanthropic or pass your legacy on through them, we have the family philanthropy resource center. That offers a whole variety of programs and services targeted specifically to helping mom and dad engage the next generation of kids in their philanthropy and offer the greater good. And let's pay it forward. That work that the family philanthropy resource center does is, you know, sort of highly personal, highly customized, if you will. But it's just one more service that you get having a donor advice fund.

12:27 

Barry Rosenzweig: That's like advising on future. I like how it stays intact with other family members.

12:34 

Eric Anderson: Yeah, some of that, it's more like I work with, for instance, here's an example. I work with a mom and dad who have a fund and they want their kids to understand that they have a role to pay it forward. It's a large fund. And so, each of the four kids gets an amount that they can distribute annually. They have to send an email to mom and dad that says, I want X to go to Y for these reasons. And then dad forwards the email to me and says, make these grants in the kids' names. So that's one way that happens. Another way is mom and dad are the current advisors to the fund, but they'll involve their kids, and they'll do family grantmaking. So we'll actually arrange for the family to go on site visits, to help them, you know, sort of review proposals if they ask for that, like we can get quite involved in the grant making process. That's another option. There's all kinds of really neat options available to individuals or families. I mean, I work with an individual who has no you know, no kids or no frontline heirs, if you will. But very good friends with this couple who are super involved in the community super philanthropic of time, more time than resources if you will. And so, he does some of his, he directs some of his grantmaking or he has them direct some of his grant making. So, he can help add value to the work that they're doing. That's another way to command it. So, there's just all different kinds of scenarios.

14:16 

Barry Rosenzweig: Let me touch on dealing with smaller the state and smaller donations that, you know, like you mentioned the $10,000 minimum. And that can come from individually, that can come from a tax deduction really doesn't matter in that respect, correct me. You may not get a tax benefit, if you donate directly, but so what. What happens when you have, you know, and I run across this a lot, I have an older couple or a widow or widower, and they have a lot of money. They have no reason to do any intense estate planning. They just want to do a will. And they just want the money. They have no living relatives, it is going to nobody if they, you know, if they pass away and they, a lot of times just top of their head say, Oh, I want to give it to this church I grew up with. I want to give it to this, to the humane society. You know, a lot of the ones that really are, they're very good at promoting the, the fact that they, you know, they're just very good marketers. Are you able, or is somebody within the organization able to present the benefits of how this works?

15:21 

Eric Anderson: Definitely. Yes. We do a lot of work reaching out to the professional advisor community. I sort of find it surprising the number of people in the professional advisor community, you know, financial advisors, tax, accountants, estate planners, who really don't even know about donor advised funds. You know, it's, I'm always sort of surprised. And when generally speaking, once somebody hears about a community foundation, a donor advise fund, legacy planning, they're like, great. I'm in, I am good to go. 

15:50 

Barry Rosenzweig: That was me. 

15:53 

Eric Anderson: So usually like in the scenario, you're saying you know, Mr., Mrs. Smith, they're going to pass away and there's going to be $10 million. I would hope you would know about donor advice funds as an option. And then we would meet with them and say, what does legacy look like to you? What issue areas are important to you? And then we can suggest a number of scenarios to help them leave their legacy.

16:16 

Barry Rosenzweig: Is somebody allowed to, again, this is somebody who has no heirs, decide I want this to go in a donor advice fund. Again, now that's not something that would be directed either restrictive or expansive, but just in their right to designate somebody else in the community to be the decision maker on where that goes and to distribute. 

16:38 

Eric Anderson: You can name anybody as a successor advisor to your fund. It can be the neighbor. It can be your faith leader. Be it the clerk at the grocery store. 

16:50 

Barry Rosenzweig: Somebody you trust and would say, you know, here's sort of my feelings and, you know, I trust you to do it, but, you know, hopefully you'll make the right decision. 

16:59 

Eric Anderson: Yeah. That's where you just get into, you know, the thing that we pride ourselves on at the Minneapolis foundation is just that we've built these really trusted relationships with individuals. So, we get to know them quite well. I mean, I’ve worked with thousand people over the last 19 years and we just have really trusted relationships. And so, they'll say, well, this is what I'm thinking. And then I can say, well, what is it you're wanting to accomplish? And you sort of figure all of that out a community foundation is for everybody. And I think that's the thing we're trying to put out there a little bit more, you know, that we sit in a really unique position as a community foundation. So, we understand the interests of our donor advisors. We understand the benefits of facilitating good philanthropy. We are on the ground, grassroots really connected with nonprofits doing work. And so, we just have this really unique role to kind of be a connector between all of those entities and be really transparent about how great philanthropy is and then how challenging it is.

18:04 

Barry Rosenzweig: Let me just interrupt you there. Can organizations looking for a grant contact the funds directly?

18:11 

Eric Anderson: Sure. What I say to a nonprofit is it's about you contacting individuals who may or may not be interested in supporting your work. If you find that they are interested, whether they give to you through their checkbook or through their donor advised fund is kind of a moot point. So, we, I think sometimes nonprofits have this idea that, you know, we are the gatekeeper of all the donor advisor money. Well, they think that.

18:36 

Barry Rosenzweig: Yeah, like everything has to go through you guys. They can go to them directly. 

18:40 

Eric Anderson: I mean It will happen. That's part of the thing, you know, we're a trusted partner with our donor advisors. So, it may be that they're interested in, I'm reading about youth homelessness. And like, I just, I want to do something. Who's doing what, then I will reach out to nonprofits and that kind of thing. I mean, I often describe it that I don't know 2 cents about anything because of this work, but I'm a solid penny. And that penny is like, I know who to call.

19:13 

Barry Rosenzweig: So can people, organizations prepare a grant proposal as a general grant proposal and then find out who might be interested or does it have to go directly to like the actual advisors of their own fund?

19:30 

Eric Anderson: As it relates to grant proposals, I mean, you would only submit a proposal to the Minneapolis foundation to receive competitive grant dollars. That kind of $6, $7 million. You would never submit a proposal that we would put in front of a donor advisor.

19:45 

Barry Rosenzweig: If somebody's looking to go through the general competitive process, are they able to contact you and say, is my proposal even worth putting together for what I'm looking for?

19:58 

Eric Anderson: Yes, yes. So, we have the community impact department, and we have community impact directors of impact strategies. Our three competitive areas right now are education, economic vitality, and civic engagement. So, there's pretty specific guidelines around what we're looking for, the kind of impact we're trying to have, you know, that kind of thing. So, and all that information is on the website. And we have community events where nonprofits can come and hear what we're looking for and they'll apply. I mean, as you can imagine, I mean, in a competitive grant run we'll get multimillion dollars of requests for like a million dollars. I mean, there's just way more requests, way more need than dollars. So, it's that sort of the unfortunate challenge around philanthropy is it's just kind of an imperfect process. I used to be a director of impact for a time period and would do competitive grant review and then people would call and say, why did we not get it? And I'm like, you know, we're splitting the hairs on heirs kind of thing. That's just a little bit the nature of the business.

21:09 

Barry Rosenzweig: Just as we finish up. Is there anything else you want to add?

21:11 

Eric Anderson: I think it's just; community foundations are really a very special kind of entity. I think I would want people to know it's accessible to everybody. Some people also have this idea of like, well, I will get this one often where a donor advisor will say to me, you know, it's just a thousand-dollar grant. I mean, that makes no difference at all. I'm much more global about it or universal, I guess. Cause I just, you know, whether it's a thousand or a hundred thousand or a million, you know, it's money out into the community. And so the example I like to use to exaggerate the point is if, you know, if I were to say to you, look, if I give you a thousand dollars right now, will that have any kind of impact for you right. End of conversation. So, there's no such thing as a grant that's too small.

22:01

Barry Rosenzweig: Well, nonprofits that need the money, they’re never not need of money.

22:07 

Eric Anderson: Right. Exactly, exactly. And some of them, and then that's where you get into, we do all that kind of work too with donor advisors. Where they're like, they'll say, well, should I make a big, should I make one $10,000 grant? Or, you know, several grants totaling 10, should I do gen op grants, or should I do program grants? Should it be multi-year, you know, there's just all these variables that we get into and there's no right answer.

22:32 

Barry Rosenzweig: And it can be as simple as saying, you know, I want to give to this organization, just make a distribution to them. 

22:40 

Eric Anderson: That's right. I mean, I have a donor advisor I work with they make probably God; I think it's like a hundred grants of like $250, $500 and $1000 dollars targeting small to midsized arts organizations. That's what they do. That's their thing. 

23:00 

Barry Rosenzweig: Because those people would have no other resources to get that kind of thing. 

23:04

Eric Anderson: I mean, I remember when I was on a board of a nonprofit that was just starting and in 30 years later still exists and we actually had somebody from a foundation come and visit. And we sold, you know, look, here's the mission, here's what we're doing. Here's where we're heading. This is why we're unique from everybody else. And the foundation representative left and actually called them the next day and said, you know, it was a great visit, you know, really good work. And you know, we're going to grant you $10,000. I mean, at that time that was the equivalent of like a hundred million trillion dollars to us. It was just so excited. And I was like to use that example too, where it's like, you just don't know when that thousand, what that thousand may or may not do or that ten or you know, that kind of thing.

23:53 

Barry Rosenzweig: Right. Okay. Well, you know, if somebody wants to explore the idea of opening a donor advice fund, would it be best to contact you directly?

24:03 

Eric Anderson: Yeah, I'd love it. Or any one of my colleagues. I mean, it's usually, it is worthwhile I think to go to our website and sort of start there to just sort of get the lay of the land, but I am one of how many of us, five or six of us that do this work. I think I win because I have the longest tenure and probably a generalist more than not. But yeah, anybody that calls the front desk and says, Hey, I'm interested in establishing a donor advice fund, they get directly to a person. And you know, that's another part of it too, right. Is that when you call every donor advise fund holder has a staff person assigned to them. And so, they, you know, they call up and they're like, Hey, Eric, I just made a grant online. And I clicked in three times and I only want one grant or, you know, can you fix that? Yes, or it's just all that kind of stuff. So we are, you know, we're their contact person.

25:05 

Barry Rosenzweig: Well, I noticed it's been very helpful for me working with you because when I want to make a grant, I just either email you or call you and tell you, I want to go and give you the address and inform, and then it's taken care of. 

25:17
Eric Anderson: It's done. A lot of our donor advisors are all about the online portal. You know, everything, you can do everything online and never talk to anybody in the foundation ever. It happens, on the other hand, Yeah, some folks are like, yes, I know I can do that, but you're on my speed dial. 

25:35 

Barry Rosenzweig: Well, now that I know that I’ll be using your website. 

25:37 

Eric Anderson: No call me so we can catch up. 

25:41 

Barry Rosenzweig: Yeah, that sounds great. I will just say one more time that I am a customer. 

25:49 

Eric Anderson: I have a satisfied customer.

25:49 

Barry Rosenzweig: Of course. I have a donor advice fund. I think it's great. I mean, in the fact that, you know, whether it was tax deductible or not, it's a nice thing to have, to be able to make those grants year after year after year after year and decide at that time who should get it versus it being one time, one off donation. And you know, maybe you can't ever make one again that way, because, or it's just not something you can do or want to do. So that's what I really like about it. 

26:20 

Eric Anderson: Control the flexibility. 

26:22 

Barry Rosenzweig: I think people are very enlightened by what just talked about on, it's not just for millionaires, multimillionaires, it's certainly set up for, you know, anybody who wants to be able to qualify and plenty of people will qualify for this.

26:34 

Eric Anderson: It's all about the greater good for the community.

26:36
Barry Rosenzweig: And also the fact that people who have no heirs and are just pulling charities out of the air to leave it to, really makes sense to [26:46 inaudible] and they feel good about knowing that somebody is going to be taken care of that for them. 

26:50 

Eric Anderson: That's right. 

26:51 

Barry Rosenzweig: Okay. Well, I think that's it. I really appreciate you coming in Eric. And you know, we'll be in touch. 

26:58 

Eric Anderson: My pleasure. 

26:58 

Barry Rosenzweig: Professionally and individually and thank you. 

27:04 

This has been the Barry law legal podcast tune in again as Barry interviews, lawyers, real estate agents, lenders, and other professionals that bring popular legal related topics into focus for his listeners. Barry Rosenzweig can be reached at (952) 920-1001 in Minnesota and (480) 227-2203 in Arizona. He can also be reached by email@barryatbarrylaw.com or online@www.law.com.