Donor-Advised Funds: Making the Case to Donors

© heliopix - Fotolia
© heliopix – Fotolia
In previous articles, I’ve discussed the concerns that fundraisers and donors have about the as-yet still largely unknown impact of donor-advised funds (often referred to as DAFs) on the philanthropic economy, particularly their ethical and policy implications, and explored some of the advantages that DAFs offer, particularly to younger donors. In this article, I’ll discuss how fundraisers can approach discussions about DAFs with their donors.

Proponents of donor-advised funds, especially commercial funds, often describe them as “philanthropic savings accounts,” allowing donors to manage their charitable giving in much the same way, and with the same ease, as they manage their household finances. Fundraisers, advocates say, should treat donor-advised funds as simply another means of directing charitable gifts to nonprofits, no different from monthly and annual giving, online donations, bequests, family foundations, or major gifts.

“For a seasoned fundraiser who understands the landscape, donor-advised funds are probably the best news in the nonprofit sector in the last 20 years,” says Ted Hart, CEO of Charities Aid Foundation of America in Alexandria, Virginia, which specializes in grant support for international charities. “For the average fundraiser, on the other hand, they are still a mystery.”

Fundraisers have expressed concern that, like money in a bank account, assets in a DAF are essentially out of circulation until disbursed. Hart counters that it’s the fundraiser’s job, not the law’s, to get that money into circulation. Hart explains that asking donors to make a gift from an advised fund — assuming the foundation makes that information available to recipients and that the donor has not chosen to remain anonymous — is no different from asking them to make a bequest or a monthly gift. “The money is already in a charitable bank account, and the donor can advise that money to you at any time,” he tells fundraisers. “So make the case. What discussion are you having with your donors to make the case that they should advise their fund to you?”

Eugene Steuerle, Ph.D., an Institute Fellow and Richard B. Fisher Chair at The Urban Institute and former Deputy Assistant Secretary of the Treasury for Tax Analysis, agrees. Steuerle describes DAFs as “time-delayed philanthropy.” “There’s no economic argument against saving the money as opposed to spending it,” he says. “The main alternative to donor-advised funds is not other charities; it is people consuming money, or else giving money to their children to consume.” Donor-advised funds, he says, is a way for donors to set money aside to spend on others instead of on themselves.

Furthermore, Steuerle says, DAFs let donors try things with their charitable gifts that they might not try otherwise, like allowing fund assets to accumulate to the point where they can make larger, more impactful gifts. “It’s a way to get donors to think about giving from their wealth, not from their income,” he says. While high-net-worth donors give from their wills and estates after their deaths, Steuerle says, DAFs allow others to play that game a little earlier.

Jason Franklin, PhD, the first W.K. Kellogg Community Philanthropy Chair at the Johnson Center for Philanthropy, agrees. “With the rise of donor-advised funds, you have to treat your mid-level donors more like your major gift donors,” he says.

Indeed, DAFs symbolize a change in the way fundraisers think about relationships with tomorrow’s philanthropists, according to Danielle Oristian York, a director at 21/64 in New York City. Until now, she says, fundraisers had the benefit of efficiency thanks to tools such as relationship management software that allowed them to manage donors in the aggregate, while donors were left to deal with the complexities of setting up and managing foundations. However, tools like DAFs have flipped that power relationship on its head; now it’s the donors who have the convenience.

Nevertheless, none of this means that the role of fundraisers will diminish. “I think there’s a false fear that somehow fundraisers are losing relevance,” he says. “Donors have always been in control of their giving. The difference is that more donors now have a vehicle for their giving beyond just writing checks.” Good prospect research and stewardship, he says, will meet donors at least halfway.

“We tell people that [setting up a donor-advised fund] isn’t a shelter,” explains Malcolm D. Burrows, the head of Philanthropic Advisory Services at Scotia Wealth Management in Toronto. “It’s about giving more thoughtfully and having more time to engage.” He encourages fundraisers to see DAFs as a way for donors to find more ways to get involved with the causes and charities they support, not to set up intermediaries between them. “Don’t assume that it’s about damming funds,” he says. “It’s about opening up the flow.”

This post was adapted from “Deciphering DAFs: How the Simplicity of Donor Advised Funds May Be Creating Complex Issues for Fundraising Professionals,” by Paul Lagasse, Advancing Philanthropy, Summer 2015 (reprinted with permission). You can read the whole article here.

Donor-Advised Funds Appeal to Younger Philanthropists

© Africa Studio - Fotolia
© Africa Studio – Fotolia
In a previous post, I discussed some of the concerns that fundraisers and donors have about the as-yet still largely unknown impact on the philanthropic economy of donor-advised funds (often referred to as DAFs). In this post, I’ll discuss some of the advantages that DAFs offer.

Donor advised funds are charitable accounts established by donors and managed by public foundations, such as a community foundation or a foundation set up by a commercial brokerage. When a donor contributes money, stock, or other liquid assets into a DAF, the foundation takes ownership of the deposits and invests them. The assets in a DAF can be used only for charitable purposes, and a donor recommends or advises on their disbursement to nonprofit organizations of their choosing. In turn, the foundation provides value-added services such as due diligence on recipient charities and investment advice, and allows the donor to claim a full charitable tax deduction upon deposit of assets into the fund. Unlike private foundations, public foundations in the United States are not legally required to distribute a minimum portion of their assets every year.

Donors may choose to set up advised funds for any number of reasons. Malcolm D. Burrows, the head of Philanthropic Advisory Services at Scotia Private Client Group in Toronto, has identified four:

  • Convenience. Public foundations handle day-to-day administrative and management burdens, freeing up donors to focus on other things.
  • Tax benefit. By turning over control of deposited assets to the foundation, donors can take the charitable tax deduction right away and make disbursement decisions later.
  • Support for causes, not charities. Donors who support causes such as land conservation or inner-city education can use advised funds to take a long-term view with their giving.
  • Flexibility. If a donor’s charitable interests change, the fund can be used to support more, fewer, or entirely different organizations right away.

Another selling point of DAFs is their low initial contribution, explains Jo-Anne Ryan, vice president of Philanthropic Advisory Services at TD Waterhouse Canada Inc. and executive director of its Private Giving Foundation. This is particularly appealing to young, early-career professionals who are looking for ways to engage in philanthropic activities with their own growing wealth.

Ryan points out that the wealth of two-thirds of her foundation’s clients is self-made, whereas just a decade ago the majority of the wealth had been inherited. Furthermore, savvy young donors are more familiar with how finances work and are comfortable using investment vehicles like DAFs. “They want to be more hands-on, and they want to engage more in their giving,” explains Ryan of a typical advised-fund user. “The more options they have, the wider the net is, and ultimately that’s going to represent more money going to charity.”

Like their parents, Generation X and Millennial donors are values-driven, but they are also deeply interested in strategies that are hands-on, innovative, and the result of due diligence. “If donor-advised funds make it easier to be a donor now, and without the administrative requirements of a foundation, then I can see how they would appeal to that kind of mindset,” says Moody.

Jeffrey M. Gorris, a partner at the Wilmington, Delaware, law firm of Friedlander & Gorris, P.A. — and a Millennial — uses a DAF to manage his philanthropic activities. He says that DAFs offer several advantages for early-career professionals like him. Because of their lower financial thresholds and ease of use, DAFs appeal to young donors who want to support their favorite charities but for who traditional foundations are not a feasible option. The low threshold allowed Gorris to establish the fund and start giving in meaningful amounts earlier than if he had had to wait to set up a foundation. Another advantage of the fund is that it helps even out his giving over time. “In certain years, the tax deduction may be worth more to me as my income fluctuates,” he explains. “If I’m going to contribute to a charity, I’d rather not have the gift fluctuate up and down too.”

Gorris says that his donor advised fund suits his giving preferences, which may differ from those of others, and he considers that another advantage. “I think it makes me more willing to give to a charity that I like,” he says.

This post was adapted from “Deciphering DAFs: How the Simplicity of Donor Advised Funds May Be Creating Complex Issues for Fundraising Professionals,” by Paul Lagasse, Advancing Philanthropy, Summer 2015 (reprinted with permission). You can read the whole article here.