The Donor-Advised Fund: Conscious Giving Meets Convenience
You have considerable appreciated assets and want to donate to charity. You have less than enough time to figure out how—not to mention where—to do so. You’re a young family committed to imparting the joy of giving to your children or an octogenarian who wants to leave money to causes close to your heart—and soon, possibly. How, where and exactly when do you donate?
For an increasing number of philanthropists, the answer is via a donor-advised fund, aka a DAF. Providing more convenience than direct donations (where research and administration fall entirely to the individual) and better value than, say, a family foundation (where costs for the same are borne by the donor), many see them as the ideal compromise.
DAFs date back to 1931, when the first one was created by the New York Community Trust. Today options range from community and issues-based funds to brokerage adjacent versions. The lowest cost and highest value one in the latter camp is Vanguard Charitable, which functions as its own 501(c)(3) but was founded by and echoes the ethos of the Vanguard investment company’s creators. To open an account, individuals or their financial advisors—or companies—“bequeath” assets to the organization by establishing a self-named fund. Sweetening the deal is the fact that appreciated securities and complex assets—which range from insurance policies to startup shares to a valuable piece of art or IP—can be given without being liquidated (the nonprofit Vanguard Charitable, also known as a DAF “sponsor,” in dialog with each client handles that process). The fund’s contents are tax deductible and for complex assets in particular, capital gains savings can be significant. Next, clients choose when, where and how to donate the money and have the option to invest it, balancing risk and reward against philanthropic goals, and let it grow tax free before donation. (Speaking of growth: One study showed that between 2015 and 2019, $5 billion in charitable dollars were created via DAFs because of nontaxable investments’ increase in value.)
To be sure, different DAFs have different guidelines. The minimum required to open a Vanguard Charitable account is $25,000—though accounts can and do range upwards of $100 million—and the minimum grant amount is $500 (the latter figure helps keep charities’ administrative costs low). Grant “recommendations” made by fund creators can be made quickly and easily. Donors can filter millions of nonprofits by name, cause and locale at the click of a button (or add an organization if it doesn’t pop up) and, when they want to do a deeper dive, are directed via another single click to Candid, a premium database that Vanguard Charitable has incorporated into its site’s functionality. All organizations are vetted through due diligence, says Rebecca Moffett, president of Vanguard Charitable—and grants are only not issued if an organization’s standing with the IRS is marred, or state or federal investigations are pending. Such instances are welcomed by most clients (an IRS guardrail, after all, protects one’s right to a deduction).
DAFs are well suited to times of crisis because they have assets already earmarked for charity and significant administrative strength behind them, say converts, and the COVID crisis was no exception. Case in point: Vanguard’s Nonprofit Aid Visualizer, aka NAVi, was created at a warp speed of four months and is a first-of-its-kind map-based tool that allows donors to see where their dollars can go, filtering via virus incidence, an organization’s focus and a proprietary Vanguard Charitable “vulnerability score.” This month, the tool got a sister version: A new iteration of NAVi highlights hunger and homelessness—a feature created in response to client priorities.
In recent years charitable giving in general has increased—5 percent in 2020 to reach over $450 billion. But again, DAFs shine: Donations jumped industry-wide nearly 19 percent in 2020 over 2019. Vanguard Charitable marked its third year of record-high giving, with $1.7 billion donated in grants to over 50,000 organizations in the fiscal year 2020 to 2021, as well as $12 billion in total given since its founding in 1997. But the utility of DAFs is not just for emergencies, says Moffett. “It enables people to be flexible and give in the moment, but also think about what their long-term goals are.” She notes it’s particularly helpful to channel the holiday spirit. “Families are gathering around the dinner table and it’s a wonderful time to engage in conversation around their values,” she says, noting one of her favorite client gift ideas is earmarking money to be spent and then “putting it” in a wrapped box under the tree for the recipient to decide exactly where to donate. Sounds like a gift that truly keeps on giving.