An Analysis of Charitable Giving and Donor Advised Funds
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Still, DAFs are a popular tool for giving. Nonprofits should seek to pursue individual donors who have DAFs.
Getting to Know Donor-Advised Funds
The fact is that there is a lot of money for groups who focus on DAFs. But, there are specific issues that fundraisers and executives should know about DAFs:.
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The reason is that regulations prohibit any donor from discharging a debt or obligation. In other words, each donation has to be a single gift and not toward any pledge.
The social good sector continues to evolve. DAFs and other tools, such as impact investing , are allowing donors to be strategic. These tools are also changing the equation for nonprofits. In other words, charities are now expected to show significant results. That said, fundraisers can keep donors who give through DAFs top of mind. All they have to do is to think about the following tips:. Consider people such as tax, legal and wealth advisors.
Also, develop connections with the community foundation in your area. Feature DAF donors in your fundraising materials.
Getting to Know Donor-Advised Funds - NonProfit PRO
Write stories about them on your blog. You can also speak of them in regular social media posts. Doing so helps other people who have DAFs see themselves involved in your charity. Remember, these people are major donors. That means you should seek to build strong relationships with them. Second, what happens under this plan if the named beneficiaries do not distribute the funds within six months? The answer to each is the same: place the burden to distribute on the sponsoring organization.
Currently, using National Philanthropic Trust as an example, sponsoring organizations provide a variety of options for what can happen upon death of the donor. If this process is invoked because of inactivity of the named beneficiaries, however, the sponsoring organization should be allowed only one additional month after the period expires to determine how to distribute the assets of the donor-advised fund.
If the donor-advised fund has a history of distributions, require that the sponsoring organization mirror that pattern at this end-of-life distribution. Therefore, if the donor had a history of recommendations to particular charities, the sponsoring organization would liquidate the fund by donating to such charities in proportion to past grants.
If a fund has made no distributions in the past, the sponsoring organization has the discretion to make a distribution. Therefore, no self-dealing issues can exist. Further, this proposal comes with the added benefit of allowing charities to solicit funds from sponsoring organizations directly, actively getting them into the marketplace. While this concept is analyzed further below, providing charities another tool has significant benefits. The downside of this proposal is that sponsoring organizations now have to choose which charities to donate to, which likely comes at the detriment of polarizing charities.
Rather than regulating this issue, by allowing charities to solicit funds from a sponsoring organization that now has to distribute funds , this solution allows the charitable marketplace to come to a natural solution. By removing the perpetuity aspect of donor-advised funds, this proposal maintains the possibility of legacy-based giving but ensures assets do not remain delayed by ending up under the indefinite control of sponsoring organization or passed on to later generations indefinitely.
Further, imposing the six-month distribution requirement on the beneficiaries ensures more distributions made and decreases the impact of administrative fees. Finally, donative intent is preserved and traditional charities can get involved in the marketplace by being able to directly solicit sponsoring organizations who are required to donate funds. By creating an information marketplace for donor-advised funds that is accessible by charities only, traditional charities will be given meaningful access to this market rather than being passive beneficiaries.
There are two chief incentives that stand in the way of pure information sharing in this context: anonymity and the interests of the sponsoring organization. There is a practical solution that solves both the anonymity issue and the potentially divergent interests of the donor and sponsoring organization: upon the donation to the donor-advised fund, make the donor opt in to remain anonymous.
Any donor that does so will in turn make distributions from the fund on an anonymous basis. Allowing optional opt-in will help to communicate as much information as possible. Functionally, the sponsoring organization, as part of setting up the fund, would record the fund and the name of the advisor of the fund with a third party. The third party would keep information such as the name of the fund and the name of the advisor. Registered charities that are eligible for distributions from donor-advised funds would then subscribe to memberships from the third party for a fee and, in turn, could view the information.
Charities would then be able to target their marketing to particular donors, primarily those who have already communicated to the marketplace they are willing to donate. The strategies that charities could implement with this information could cause an explosion in the efficiency and effectiveness of their efforts. The purpose of tracking whom donations are made to is a business decision, one that allows charities to more effectively identify potential donors.
The charities themselves can be the stimulus for more seamlessly getting charitable dollars to the organizations the vehicle is supposed to benefit. A similar process to this proposal is available for foundations. Foundations have specific funding priorities and missions which are transparently communicated, whereas donor-advised funds are an information black-hole. By creating this charitable information marketplace, charities will be provided the solution to the illiquidity problem of donor-advised funds that has to-date remained elusive; they will be no longer be kept on the sidelines.
Donor-advised funds are a fundamentally positive force on charitable giving in America but need revisions to correct the current incentive structure which has led to far-too-low distribution rates. Total assets donated to traditional charities should increase as a result of this vehicle, not be delayed. This Note recommends a way to achieve having donor-advised funds play his role, protecting both the donor and charity alike without compromising the integrity of the Code.
Second, charities must be given meaningful access to the market through the creation of an information marketplace that adequately communicates information from sponsoring organizations to a third-party intermediary that is accessible by charities. Donor-advised funds have spurred growth in the charitable marketplace, but such growth has come at the cost of its role in charitable giving: being a low-friction facilitator and a solution to a market inefficiency.
Under this recommendation, donor-advised funds will return to this purpose while becoming even more efficient at distributing funds, maximizing the benefit to donor and charity alike. In providing these small revisions, the benefits of the vehicle and the integrity of the Code will be retained without adding so much complexity to the system that the solution becomes unfeasible. Ultimately, this approach will provide greater liquidity to the charitable marketplace that donor-advised funds have fundamentally altered. It will not hinder the benefits or growth that the vehicle has experienced over the past few years and will allow the usefulness of the donor-advised fund in the charitable market to reach its maximum potential.
I want to thank my family for their continued love and support throughout my time writing this Note, as well as throughout law school. I would also like to give a special thank you to my wife Margaret for not only the inspiration for this Note, but also for the significant time spent passionately discussing the topic and for her unwavering support. For the third year in a row, total giving reached record levels. Peter J.
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Charities That Raise the Most , Chron. Philanthropy Oct. Vara, supra note 4. Further, National Philanthropic Trust ranked seventeenth on the Philanthropy Endowment Found. Lewis B. See, e. From through , charitable giving by individuals increased in inflation-adjusted dollars. But now it is threatening to undermine the American system for funding charity. Donor-Advised funds are often referred to as a charitable savings account. See 26 U. See discussion infra Section III.
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Philanthropy Aug. Project Inst. See id. Terry W. Tax Rev. Knoepfle, supra note 40, at See infra Section II. What I s a Donor — Advised Fund? Knoepfle, supra note 40, at — Intermediate Sanctions , supra note New Requirements for Donor — Advised Funds , supra note Valas, supra note 79, at 2. Fidelity Charitable Ranks No. Valas, supra note 79, at 1.