Connections for Success

 

08.28.12

Making A Difference®: The World of Giving and Learning About Donor Advised Funds
Lisa Dietlin

Have you heard of Donor Advised Funds (often known as DAFs)?  Many people haven’t but they are well worth learning about and ascertaining if they can help you begin or continue Making A Difference® in your community while achieving your philanthropic dreams and goals.  Be warned that many reading this will think it is a vehicle and option only for the wealthy but, be assured, most DAFs can be started with a minimal amount.  Read on and find out more about this opportunity that has been in existence for nearly 80 years!

DAFs are charitable giving accounts that are handled by a sponsoring organization, often a community foundation or for-profit financial services company (which usually charges a fee based on the balance and number of transactions annually).  Providing significant benefits (more about that below) to the donor, they are relatively simple to set up, require less expense and time, offer privacy while maintaining advisory opportunities and are more flexible than private or family foundations.

So how do they work, you might ask?  The donor contributes an irrevocable, tax-deductible asset to the sponsoring organization (i.e., community foundation) with directions on how it should be invested before its is granted.  The donor, if they so choose, then suggests the distribution of these funds as grants from their accounts to specific charitable organizations – or fields of interest – over time. The sponsoring organization, however, retains the legal authority on how the funds are distributed.

While it’s not unheard of, most nonprofit organizations do not set up DAFs themselves, unless this is their mission, as with many community foundations.  With little income going directly to the nonprofit, the costs of maintaining, handling, directing and granting DAFs can be substantial, and the final distribution of grants goes to other nonprofit organizations.  With this in mind, the creation of DAFs by existing nonprofits may not match their goals or provide new income opportunities when the costs and resources are considered.

But for high net worth (or even not so high net worth) donors, the opportunities from funding DAFs, instead of family foundations, can be considerable.  This is a significant reason why the number of DAFs is growing substantially.

DAFs have been around since the 1930s, but began to grow exponentially about 20 years ago.  In 2009 — a year for which detailed statistics are available – DAFs had $25.2 billion in assets, distributed $6 billion in grants and had an average account size of just over $150K.

As a point of reference, the largest organizations managing DAFs are:

  • Fidelity Charitable Gift Fund – With more than $13 billion in grants since 1991 (and $1.25 billion in 2011 against $5.57 billion in assets), Fidelity has seen tremendous growth in the last two years and now manages over 50,000 funds – www.fidelitycharitable.org
  • Schwab Charitable – This fund has distributed more than $2 billion and is known for a detailed and strategic approach to donors and advisors – www.schwabcharitable.org/public/charitable/home
  • An example of a sponsoring organization focused on a particular issue, the Calvert Foundation manages DAFs that match their mission to maximize the flow of capital to disadvantaged communities – www.calvertfoundation.org
  • The largest of the community foundations, the Silicon Valley Community Foundation, has assets just under $1 billion and is known for managing accounts of professionals in the tech industry – www.siliconvalleycf.org

So how do you get started?  Here are several reasons for you to consider establishing a DAF:

  • The minimum contributions to get started are small (often just $5,000)
  • Costs are low – and with the aggregation of multiple funds in one organization fees are also low (99% of dollars from DAFs go to charity)
  • Although the sponsoring organization has legal control, the donor retains advisory privileges in terms of both investments and distribution
  • Donations are treated as contributions to a public charity, often allowing the donor to claim up to 50% of adjusted gross income vs. the maximum 30% allowed when giving to a private foundation
  • Appreciated securities can be accepted and processed without the donor paying capital gains tax
  • Start-up costs as well as legal, administrative and accounting services are lower than with a private foundation
  • Cost of staff to research, recommend and track grants is handled by the sponsoring organization
  • Grants can be recommended anonymously
  • Grants can benefit multiple charities but still require only one substantiation letter, consolidating tax reporting
  • There are no annual minimum distribution requirements (although this may change)

Additional information on DAFs is readily available:

Additional information can also be found at

While DAFs have only been legally defined since 2006, their tremendous growth and substantial benefits make them an important part of the discussion for anyone considering creating a foundation or other ongoing giving vehicle.  So start today.  Talk to your accountant, financial planner or make a call to your community foundation to begin the discussion.  You might be surprised at how Making A Difference® is easily accomplished through DAFs.

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