From Private Foundation to Donor Advised Fund: Quicker Than You Think

This post is a follow-up to Which is Better: Donor Advised Fund or Private Foundation? My comments there about the lack of privacy in a private foundation caught a lot of readers by surprise, and generated some interesting conversations from both financial advisors and their clients.

In that post I briefly refer to “voluntary revocation,” the process CRA has put in place to allow private foundations to effectively cease operations and close down.

For those of us working in the donor advised fund (DAF) arena this has been a recurring conversation over the last couple of years. Here’s the scenario: An individual or family experiences a windfall. Perhaps they sold a business or received a large inheritance — the reasons don’t really matter — and they’ve decided to be generous with their wealth. And so they create a private foundation because, well, that’s what you do in these situations, right?

Fast forward a couple of years and the bloom is off the rose. Maybe it’s the paperwork, maybe it’s the lack of privacy of their so-called private foundation, but often it’s expressed as something like, “It’s just not as much fun anymore.” That’s heartbreaking, because these are generous people whose intentions were good, and they are making a difference in the world.

When I have the chance to speak with these people I always ask the question, “What’s your favorite part about what you’ve been doing?” and the answer is almost always the same. They tell me that the most meaningful part has been the times they’ve sat around the table as a family and talked about which causes and charities to support. I love it when I hear that! My response? “You keep doing that and we can do the rest for you.” Move your charitable assets into a donor advised fund, close the foundation, and carry on doing good.

And that’s where voluntary revocation comes into play.

Note that your clients do not need to wait for the revocation process to come to a close before transferring the assets to their new DAF account. For a variety of reasons, CRA even suggests that “it may be in the charity’s best interests to distribute its assets before seeking voluntary revocation.” This works perfectly with a DAF. Simply put, the private foundation makes a grant of its assets to the sponsoring charity of the donor advised fund. There, a new donor advised fund is opened with those assets, and the donors can start to make grant recommendations. Then, the private foundation can initiate the process as described below.

How to request voluntary revocation, using Chimp as an example:

1. Your client sends a letter to CRA requesting a voluntary revocation. The letter must be signed and dated by one of the foundation’s directors/trustees or by another person authorized to sign on behalf of the charity.
2. You and your client open a donor advised fund, sponsored by Chimp Foundation and known here as a Charitable Investment Program (CIP).
3. In consultation with their professional advisors, your clients transfer the assets in their private foundation to the new donor advised fund.
4. Chimp will administer the CIP and your clients recommend the charities they would like to continue to support (now enjoying full anonymity if so desired).
5. CRA will confirm receipt of the request for voluntary revocation.
6. CRA will also send a Notice of Intention to Revoke a Charity’s Registration (T20514) and a Tax Return Where Registration of a Charity is Revoked (T2046).
7. When completed CRA will publish a notice of revocation in the Canada Gazette, the official newspaper of the Government of Canada.

By all accounts, voluntary revocation is an easy process that allows your clients the freedom to keep enjoying their philanthropy without having to endure the administrative burden of a private foundation. And they don’t have to wait for the process to finish before moving their charitable assets over to their donor advised fund. With voluntary revocation, your clients can keep making a difference without skipping a beat.

Previous articles in this series:

Why Should a Financial Advisor Care About Philanthropy?
How Donor Advised Funds Will Enhance Your Wealth Management Practice
How to Have the Philanthropic Conversation
Which is Better: Donor Advised Fund or Private Foundation?

Based in beautiful Vancouver, Mike is the Director of Charitable Investment Programs for Chimp. He loves the wealth management business but his heart is in philanthropy, so this is his dream job. Mike can be reached at mike.todd@chimp.net