From David T. Leibell and Daniel L. Daniels of Cummings & Lockwood LLC in Stamford, Conn., we have this update:

IRS approves donor control of investments. In a private letter ruling that was issued but not published as of presstime, the Internal Revenue Service has approved a charitable giving strategy enabling donors to manage the investments of their charitable contributions. The strategy, called the “Donor Managed Investment Account Program,” was developed by Winklevoss Consultants, based in Greenwich, Conn. Winklevoss has applied for a patent for the program and provides back office services to administer it. Winklevoss asked the IRS for the letter ruling that green-lighted the plan.

Unlike a donor advised fund, which limits investment alternatives to a few specific mutual funds or predetermined strategies, the new program allows a donor to choose from a variety of investment alternatives. But the strategy is less flexible when it comes to distributions from the account, because there can be only one recipient charity.

Here's how the new strategy works: A donor gives money to a donor managed account, which is owned by a recipient charity. That charity allows the donor to direct the investment management of the funds for an agreed-upon time period. During that time, the donor can actively reallocate the investments. When the time is up, funds are applied to the agreed-upon use established by the donor and the one recipient charity.

Here are the facts behind the private letter ruling: Two donors, an individual and a limited liability company, proposed making donations of cash and publicly traded securities to a college. At the time of the donation, both donors were to enter into separate agreements with the college. The contracts would be identical, except for the donor's identity and the description of the contributed assets. The agreement would provide that any donation made to the college would be placed in an investment or brokerage account established in the name of the college, exclusively for its benefit. Each donation would be unconditional and irrevocable. Both donors would agree to surrender all rights to retain or reclaim ownership, possession or a beneficial interest in any donation; they would also agree not to divert the assets held in the account to any person. Under each agreement, the donors, or their respective investment managers, would be permitted to use a limited power of attorney to manage the investments in the account.

Each donor would have broad investment authority to invest in U.S. equities, hedge funds, mutual funds, private placements and real estate investment trusts. There would be limits, however: The donors couldn't encumber or pledge the account's assets; couldn't vote any stocks or other securities held in the account; could not invest in short sales, forward contracts or other derivatives; and would be prohibited from self-dealing.

The donors' power to manage the investments would end 10 years from the date of the donation, unless terminated earlier in accordance with the agreement. The agreement would also give the college the right at any time, or for any purpose in its sole discretion, to withdraw all of the assets in the account or to terminate the agreement. The agreement automatically would terminate in the case of severe loss (as determined by the college in its sole discretion) and could be terminated at any time by either party upon written notice.

The IRS ruled favorably for Winklevoss, finding the contributions by both donors met the requirements for the income tax charitable deduction and for the gift tax charitable deduction.

For donors who want to benefit a particular charity (such as a college) but want ongoing investment control, the arrangement seems ideal. But it won't replace private foundations or donor advised funds for those who want to make grants to more than one charity.