Silicon Valley One - Summer 2008 - (Page 6) big ideas Donors learn to navigate new regulations Scholarships in the Spotlight P hilanthropists of all stripes may have wildly different interests when it comes to giving, but there is one thing they seem to agree upon. “Education is something that can demonstrably help people,” says Janne Gallagher, vice president and general counsel at the Council on Foundations, a Washington, D.C.-based nonprofit composed of more than 2,100 grantmaking organizations. As such, scholarship funds have grown in popularity in recent years. Many assist students with first-year college tuition and expenses and are often one-year awards in relatively small sums, averaging around $1,000. An advantage for those sponsoring a scholarship under the auspices of a community foundation is the ability to earmark scholarships for ethnic and racial minorities without worries of discrimination lawsuits. But scholarship funds have gotten a little more complex in the past few years. In August 2006, President George W. Bush signed the Pension Protection Act (all 900 pages of it) into law, putting new restrictions on scholarship funds to make sure they’re used for their intended purposes. Although the legislation was meant to protect individual pension and retirement account owners from being mishandled by their employers, the law also included several charitable reforms, specifically those affecting scholarship funds. For instance: “The Act legally defined, for the first time, what is a donor advised fund,” says Gallagher. A donor advised fund is a charitable giving vehicle set up under the tax umbrella of a public charity, which acts as sponsor. Such a fund provides a flexible, low-cost vehicle for charitable giving as an alternative to direct giving or creating a private foundation. Donors enjoy administrative convenience, cost savings and tax advantages by conducting their grantmaking through a donor advised fund. A donor advised fund must meet additional criteria. It must be separately identified from the donor, and it must be legally owned and controlled by a sponsoring organization. The donor must also provide advice regarding the fund’s investments or distributions. Most importantly, the Pension Protection Act “prohibited donor advised funds from making grants to individuals, yet provided an exception for funds that were advised by committees where the donor did not control the committee,” Gallagher says. Community foundations pioneered the development of donor advised funds, and many commercial sponsors, educational institutions and independent charities now offer this service. As a result, community foundations made several changes to their scholarship fund policies and procedures, effective January 2007. In 2007, Silicon Valley Community Foundation awarded more than $328,000 to 137 students, and donor advised funds awarded more than $332,000 to 179 students. “We’ve reclassified many funds and helped others conform to the new rules,” says Lisa Alvarez, scholarship officer of the community foundation’s 46 scholarship funds, 29 of which are donor advised. Donors are familiarizing themselves with the new regulations. “We’re still getting a lot of questions,” Alvarez says. But she expects scholarship funds to remain as popular as ever. —Tamar Snyder one 6 one innovation through philanthropy www.siliconvalleycf.org Steve Hix/Jupiter imageS http://www.siliconvalleycf.org
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