Assignment 6: Donor Advised Funds and the Organizations Offering Them Flashcards
1
Q
Donor Advised Funds
A
- Donor makes irrevocable contribution to a nonprofit org that administers a “donor advised fund”
- Receives an immediate income tax deduction (qualifies for public charity deduction limits)
- Donor or a donor-appointed adviso advises on the investment and/or distribution of the assets in the account
- Some charities will allow named beneficiaries to assume an advisory role after the death of the donor
- Donor recommends charitable grants based on his/her timetable
- Grants support 501c3 ors; the fund sponsor checks make sure recipients are on the IRS list of approved charities
- Sponsoring org generally follows the donor’s recommendations, but is not legally required to do so
2
Q
DAF contributions growing
A
Giving to donor advised funds increased to 12.7% total giving in 2018 and is still growing
3
Q
DAF Sponsors
A
- Community Foundation
- National Gift Funds (offered through financial firms like Fidelity, Schwab, Vanguard, etc.)
- Single-Issue (National Jewish Federation, Catholic community foundations, hospitals, universities, similar institutions)
4
Q
Comparison by Sponsor Types
A
- Even though there are far more community foundations than other sponsor types, national charities hold the lion’s share of number of DAFs (593,356) and represent the largest total charitable assets ($72B)
- Community foundations average DAF size far exceeds other sponsor types: $438,561-CF; $121,937-NC; $262,075 SI
- All sponsor types far exceed payout rate as compared to that of private foundation 5% requirement: 16.6% CF; 22.2% NC; 28.2% SI
5
Q
DAF vs. PF
A
- 9 times more DAFs than PF (2017: 469,331 DAFs v. 80,000 PFs)
- PF have more assets than DAFs (2017: $112B DAF v. $823B PF)
- PFs also have more total grant dollars (2017: $19.7B DAF v. $49.5B PF)
6
Q
Average vs. Median
A
- Average size of a DAF account: $166,653
- Median size of Fidelity DAF account: $20,707
- 54% less than $25,000
- 37% between $25,000-$250,000
- 9% $250,000+
7
Q
Noncash Donations at Fidelity
A
63% of Fidelity charitable donor contributions were made with noncash assets in 2018
- 16% non-publicly traded assets
- 47% publicly traded assets
- 37% cash
60% in 2019
- More than half in publicly traded securities
8
Q
DAF Advantages
A
- Easy to establish
- Avoid the legal work to set up a foundation and the administrative work of running one
- Sponsoring org can accept a range of asset types: cash, publicly traded stock, real estate, etc.
- Donor receives immediate tax deduction
- Min. required to set up a DAF is low–many times $10,000
- Donor can give in relatively small amounts
9
Q
DAF Privacy
A
- Foundations require public disclosure of grants, but with a DAF, givign can be done anonymously (gifts to controversial causes, need for privacy for donors who want to stay off lists, avoid public attention, etc)
- Privacy and confidentiality are so important for some wealthy families that a family foundation is ruled out in favor of a DAF
10
Q
DAF Uses
A
- Can be considered like a family foundation for those of more modest means
- Can serve at “training wheels” for a future private family foundation
- Good way to engage children in giving
- Can be used in high-income years to set money aside for future gifts
- May be used in business transition planning
11
Q
DAF When to Consider
A
- If the donor has assets other than cash or publicly traded stock, the fund will accept:
- Closely held business interests
- Raw land
- Commodities
- Patents
- Timber
- Other such complex assets
12
Q
Donors Approaching Retirement
A
- More than half of donors establish a DAF in their 50s
- The average age for establishing a DAF is 55
13
Q
Conversion from PF to DAF
A
- This is a trend
- Asset size
- Changing goals
- Fewer administrative responsibilities
- DAF permits anonymous giving
14
Q
DAF Caveats
A
- DAF may not be used for quid pro quo donations (gala, events, etc.)
- May not support lobbying political campaigns, or other political activities
- Generally, DAF sponsors will not allow grants to foreign charities, but some will try and may charge accordingly
15
Q
DAF and Pledges
A
- Basically, pledges can be paid from a DAF as long as the sponsoring organization and the donor don’t refer to it as a pledge
“Certain distributions from a DAF that the recipient charity treats as fulfilling a pledge made by a donor or donor advisor would not result in a more than incidental benefit under section 4967, provided that the sponsoring org made no reference to the existence of any individual’s pledge when making the DAF distribution.”
16
Q
DAF concerns to industry
A
- Sometimes, because of privacy, it’s difficult for a charity to identify the donor(s) when a gift comes from a DAF.
- Stewardship of a donor can be a challenge
- However, 88% of Fidelity’s grants in 2019 included names and addresses of donors on grants; 9% include giving account name only; 3% remain anonymous
- Concern about hoarding money in a DAF and never granting from it (but the pay out rate from a DAF continues to be higher than the 5% min. payout rate of a PF–21% in 2018 from DAFs)
- Hoarding funds in DAFs continues to be controversiala
17
Q
DAF Funds flow out
A
- Three-quarters of grant dollars are distributed within five years
- 74% of grants went to charities donors had previously supported (new grant: 26%; regrant: 48%; scheduled grant: 26%)
18
Q
Outlook for DAFs after Tax Reform
A
- Number of itemizers fell from 46M to 19M
- Charitable donations estimated to be reduced by 5%
- Individual giving declined by 1.1% in 2018
- Gifts of $1,000+ increased by 2.6%
- Gifts between $250 and $999 fell by 4%
- Gifts under $250 dropped by more than 4%
19
Q
Charitable Bunching
A
DAFs could be a good vehicle to use for charitable bunching as a result of tax reform
- Instead of $5,000 a year, give $50,000 to a DAF, then give the usual $5,000 a year in charitable gifts out of the DAF.
- May be beneficial for those bunching their gifts, who also want to maintain their annual giving
20
Q
Community Foundations
A
- Tax exempt public charities serving people who share a common interest
- Often are “area foundations” that are geographically centered, with their focus being to improving the quality of life in a specific geographic area
- Individuals, families, businesses, orgs create permanent charitable funds that help their region meet the challenges of changing times.
- The foundation invests and administers the funds
- All community foundations are overseen by a volunteer board of leading citizens and run by professionals with expertise in identifying their communities’ needs
21
Q
CF Stats
A
- 763 community foundations in the US
- 2018 data:
- $86B in assets
- $10.5B in gifts
- $9B in grants
22
Q
CF Offerings/Services
A
Funds:
- Donor Advised Funds
- Scholarship Funds
- Designated Funds
- Field of Interest Funds
- Unrestricted endowments
- Endowments held for other nonprofits
Other tools:
- Supporting orgs
Services:
- Donor education
- Donor networks
- Grant assistance
- Scholarship administration
- Vetting nonprofits
- Family philanthropy support
- Fiscal agency (back office) for nonprofits
23
Q
Advisor Referrals
A
- Mature community foundations may get 40-80% of new funds from advisor referrals
- Much of the balance comes from referrals from donors who were referred by advisors
- Can advisors get paid on funds they bring to the CF? Depends on CF policy and on amount
- Advisors should check with compliance if possible
24
Q
DAFs at CF
A
- Beneficial to donors who want advice about grantmaking
- Donors like being able to see the bricks and mortar locally and meet with the staff
25
Q
Unrestricted Funds
A
- Established so that the CF staff can grant the money in accordance with their best judgement. “Donors may choose to benefit our community as a whole, leaving their grants to Foundation’s board and our expert staff…”
26
Q
Field of Interest Funds
A
- Donor specifies a field of interest for a fund that the donor can name (You specify the interest area, name it and provide cash or assets to fund)
- Others can give too
- “We at the CF steer the grants to the best organizations in your interest area”
Common FOI funds:
-Aging, AIDS/HIV, Covid-19, Animals, Arts, Basic Human Needs, Children, Education, Community Development, Conservation, Disaster Relief, Historic preservation, Mental Health, Racial and gender equity
27
Q
Designated Funds
A
- An endowment to hold assets permanently for a named charity
- Income is distributed based on the schedule and criteria established for the fund
“An outsourced endowment for a charity you select; Good for small charities not able to manage their own endowment; If the charity fails, the fund will continue to benefit one like it”–CF variance power
28
Q
Scholarship Funds
A
- CFs can set up and administer these for a donor, subject to certain minimums/fees
- The donor can name the scholarship
- CF may help publicize the scholarship and manage the application process
- Donors can establish guidelines/critera and an advisory committee to help with the selection
- PFs are required to secure advance approval of their procedures for making scholarship grants to individuals
29
Q
CF Donor Services
A
- Fund investment statement
- Grant processing
- Briefings and site visits
- Research of topics and nonprofits
- Creation of funding collaboratives/giving circles
- Match funder’s interests with nonprofits’ capabilities
30
Q
Family Philanthropy Services
A
- Events for family, friends and colleagues
- Youth education in philanthropy
- Facilitation of family meetings
- Formation of a philanthropic plan
- Referrals to resources in such areas as business succession
31
Q
Supporting Organizations
A
- Some CFs partner with supporting orgs, sometimes allowing SOs to be established under the CFs wing
- Silicon Valley Community Foundation
Skoll Fund (Ebay founder) is a SO @SVCF ($563M)
Skoll Foundation is a PF ($564M)
32
Q
Four CF operating models
A
CFs do all of these in differing proportions. Typically influenced by asset size and external environment.
- Donor Focused (DAFs, Designated Funds)
- Grant Focused (Unrestricted, Field of Interest)
- Fiscal Agent (Agency endowment, short-term pass-throughs, Scholarship Funds, Fundraising Funds)
- Leadership (Community convener, community catalyst)
- CFs differ greatly by community
- 10% of CFs (60) reported a decline in charitable assets. DAFs in those 60 CFs represented 36% of total charitable assets in CFs
33
Q
CF not just geographic
A
- CFs or “area foundations” as defined by Council on Foundations, serve a particular geographical area
- But there are also variants that serve an identity throughout the country, or an identity within a particular area. Examples include:
- National Christian Foundation
- Presbyterian Foundation
- Astracea Foundation and Horizons Fdn (LGBTQ)
- Latino Community Foundation
- Center for Arab American Philanthropy
- Catholic Community Foundation
34
Q
Note on legal status
A
- Some are CF per se
- Others are agencies of a public charity, such as a religious org
- Regardless, they provide services like those offered by CFs (legacy planning, DAFs, Advice on grants, Building community, etc.)
35
Q
Trends and Considerations
A
CFs and Covid-19
- More than 500 CFs created relief funds to support those affected by Covid-19 (Seattle Foundation spearheaded the Covid-19 Response Fund with partners and raised $20M)
- As of June 1, 2020, $882.8M have been mobilized,
$462M granted out
36
Q
Fidelity Charitable and Covid-19
A
Fidelity survey on Covid-19 and philanthropy
- 25% of donors plan to increase their donations
- 46% of millennials are more likely to step up their donations, compared to 25% of Gen-X and 14% of baby boomers
- 32% of donors say they don’t have the information they need to understand where they can direct their support effectively
- As of April 8, 2020, more than $100 million in grants from DAFs were recommended to over 4,500 nonprofits in response to Covid-19
37
Q
DAF vs. PF–Review
A
Exempt status: DAF–public charity status/PF–private charity
Deduction limits: DAF–60%, 30% of AGI/PF–30%, 20% of AGI; all but public stock limited to basis
Donor Control: DAF–Influence short of control/PF–Significant control
Minimum pay-out: DAF–Non other than those imposed by sponsor/PF–5% of assets each year
Start-up: DAF–As easy as mutual fund/PF–Entity must be established with own tax-exempt status
Minimum size: DAF–Usually $10,000/PF–$1M - $5M
Annual taxes: DAF–None/PF–Excise tax (1.39%) on net investment income
Annual filings: DAF–None/PF–990-PF
Admin: DAF–None/PF–Must secure its own services
