What form of charitable fund giving had the greatest growth in both total numbers and $ value of assets last year? AND the year before?
Private foundations? No. Charitable trusts, like CRTs or charitable lead trusts? No. How about pooled income funds? Nope, not them. And if you’re thinking corporate foundations, it’s not them either.
Give up? It’s donor advised funds (DAFs).
The National Philanthropic Trust reported that at the end of 2013 donor advised funds exceeded $45 billion in assets under management. And last year, contributions to donor advised funds totaled $13.7 billion, an all-time high, with over $8 billion being distributed to charities. That’s a lot of money.
We usually think of community foundations as repositories of donor advised funds, but they are also held at national foundations, like the National Philanthropic Trust and Fidelity Charitable Gift Fund, and single-issue charities, like Jewish Federations.
A few weeks ago, The Chronicle of Philanthropy reported that Fidelity Charitable, the biggest of the advised funds, will soon surpass United Way Worldwide and become the largest “charity” in the country.
Last December Mark Zuckerberg donated 18,000,000 Facebook shares to the Silicon Valley Community Foundation; that’s about $1 billion (his second such gift to them). Nobody’s saying whether he put it into a donor advised fund, but it makes sense. It was reported in the media that the foundation would “help him allocate donated assets in the coming years.” That’s a clue.
Simply put, donors can contribute funds to a donor advised fund and get an immediate tax deduction. Many people view them as acceptable alternatives to direct gifts and private foundations because they don’t have the rules private foundations do, someone else manages the fund for them, and they avoid the higher costs of private foundations.
Additionally, contributors to donor advised funds are not required to allocate a certain percentage of their funds to nonprofit organizations in any given year, unlike private foundations. However, there is an expectation that DAF funds will be used to make future grants. And history shows us that overall these funds contribute more than the minimum 5% required of private foundations.
Nevertheless, Congress has been discussing requiring a minimum annual payout. The Chronicle article referenced above explores 5 myths about payout rules for advised funds. You can find the article here.
If fundraising is one of the ways your organization supports its programs and services, you owe it to yourself to be aware of donor advised funds and how they might be of benefit to you. If you haven’t already, contact your community foundation for more information. You'll be glad you did.