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.”
