Home » Node » Meet-the-Donors: Donor Advised Funds 7/11/2018

Meet-the-Donors: Donor Advised Funds 7/11/2018

Meet-the-Donors: Donor Advised Funds

Moderator:

Gioia C. PeruginiAssociate Director, Family Office and Philanthropy Services, Hemenway & Barnes

Panelists:

Charlie GlassenbergVice President, Gift Planning & Investment Partnerships, Combined Jewish Philanthropies

Karen HealdDirector, Relationship Management, Private Donor Group, Fidelity Charitable

Jodi RosenSenior Philanthropic Services ManagerVanguard Charitable 

Julie Smith-BartoloniSenior Director of Donor Relations, The Boston Foundation

Jean WhitneyPhilanthropic ConsultantRopes & Gray 

Organizational Snapshots and Websites

The Boston Foundation

www.tbf.org

The Boston Foundation, Greater Boston’s community foundation, is one of the largest community foundations in the nation, with net assets of more than $1 billion. In 2017, the Foundation and its donors paid $130 million in grants to nonprofit organizations and received gifts of more than $194 million. The Boston Foundation is a close partner in philanthropy with its donors, with more than 1,000 separate charitable funds established either for the general benefit of the community or for special purposes. It also serves as a major civic leader, think tank and advocacy organization, commissioning research into the most critical issues of our time and helping to shape public policy designed to advance opportunity for everyone in Greater Boston. The Philanthropic Initiative (TPI), a consulting unit of the Foundation, designs and implements customized philanthropic strategies for families, foundations and corporations around the globe.

Combined Jewish Philanthropy

www.cjp.org

CJP, Greater Boston’s Jewish Federation, seeks to inspire and mobilize the diverse Greater Boston Jewish community to engage in building communities of learning and action that strengthen Jewish life and the world around us. CJP was founded in 1895 as America’s first Jewish federation and began creating Donor Advised Funds in 1971. CJP’s Donor Advised Fund program has grown nearly six-fold in the past decade and is a critical part of CJP’s development program, which partners with Jewish community philanthropists in Greater Boston in a broad spectrum of giving and leadership opportunities with global impact.

Fidelity Charitable®

www.fidelitycharitable.org

Fidelity Charitable® is an independent public charity that has helped donors support more than 255,000 nonprofit organizations with nearly $30 billion in grants. Established in 1991, Fidelity Charitable launched the first national donor-advised fund program. The mission of the organization is to grow the American tradition of philanthropy by providing programs that make charitable giving accessible, simple and effective.

Hemenway & Barnes LLP

www.hembar.com 

For over 150 years, Hemenway & Barnes LLP has provided legal and fiduciary services to individuals, families, and closely held businesses. Hemenway & Barnes offers a full range of philanthropic advisory and grant making services to private foundations, trusts, individuals, families and other entities. In 2017, the firm’s 26 philanthropic advisory clients made over 800 grants to more than 700 individuals and nonprofits totaling over $20 million.

Ropes & Gray

www.ropesgray.com

Established in Boston 150 years ago, Ropes & Gray now has law offices in 11 locations worldwide, employing about 1,200 attorneys.  Its Private Client Group practice is one of the largest of its kind in the United States.  This practice has particular expertise in matters relating to the management and transfer of wealth, estate and income tax planning, and trusts. Lawyers in the Private Client Group work closely with Ropes Wealth Advisors, a wholly owned subsidiary of the firm.  Ropes Wealth offers a full range of financial planning and investment advice. It offers an integrated perspective by managing a client’s investments and financial planning in close coordination with their legal and tax advisors as they assist with gift and estate planning, prepare tax returns, consult on philanthropic transfers and provide other fiduciary services.  Ropes Wealth Advisors offers a donor advised fund opportunity to its clients through a partnership with the American Endowment Foundation.

Vanguard Charitable

www.vanguardcharitable.org

Vanguard Charitable is a leading U.S. nonprofit organization. Its mission is to increase philanthropy and maximize its impact over time by sponsoring donor-advised funds. A donor-advised fund, or DAF, is a tax-effective way to consolidate, accrue, and grant assets to charity. Founded by Vanguard in 1997 as an independent 501(c)(3) organization focused on supporting donors' charitable plans, Vanguard Charitable is strongly aligned with Vanguard's principled investment philosophy and commitment to diversification, transparency, and cost-effective service. With more than 17,000 active accounts and over $7.5 billion in grants to charity since inception, Vanguard Charitable donors have demonstrated the importance of long-term, strategic charitable planning that minimizes costs and maximizes the impact of philanthropic giving.

 

Donor Advised Fund – Fund at a public charity (often referred to as a sponsoring organization), donated by funder giving the sponsoring organization legal control over those dollars. Donor(s) representing that fund receive advisory privileges with respect to the distribution of funds in the investment and assets in the account.

  • NOT private foundations – different based on how IRS treats them and how they are operated
  • Growing quickly, popular for their flexibility

Who might use a DAF and why?

Combined Jewish Philanthropies (CJP)

  • has 750 DAFs that they manage
  • people who want to structure their giving if they give to more than one charity a year, give annual instructions, maximize tax benefits, ensure future of fund

Fidelity Charitable

  • Giving Report available to public on their website with some DAF stats
  • Host over 100,000 DAFs, granted out $4.5 billion to charities in 2017, making their aggregated donors the number two giver after the Gates Foundation
  • Most people open accounts as they’re approaching retirement, Fidelity is national, but most DAFs are focused in major cities
  • Donors fall across wealth spectrum, $5000 to open an account and 57% of accounts are under $2500, only 8% of accounts are greater than $250,000
  • Median giving account balance is $20,000 – puts DAF donor more in line with an annual giving prospect
  • 80% of donors started themselves as volunteers

Vanguard Charitable

  • Independent from the Vanguard Group, also a national DAF
  • Finding that the demographic of DAF donors is getting younger, more creative, more strategic

The Boston Foundation (TBF)

  • Community foundations – place based public charities that hold charitable assets to be deployed directly into the community
  • TBF currently has $1.2 billion under management and about $700-800 million of that is in about 700 DAFs
  • Grant out $100 million from DAF, 70% of those grants are going to organizations in MA, 90% of those funds are to organizations in Greater Boston
  • The donors are often people from Greater Boston or with ties to Greater Boston, interested in investing and supporting the region

Ropes and Gray

  • Different arrangement coming from a law firm, DAFs are relatively new offering
  • Ropes Wealth Advisors partners with American Endowment Foundation to offer Donor Advised Funds, attractive for the flexibility
  • Client who sets up fund has complete control over their funds, they don’t pay any services fees etc

What is the role of philanthropic advisors (at supporting organizations) to donors who use these types of funds?

  • Can do research for the donor – if a donor expresses interest in an organization, the advisor can research financials, programs, history etc for them
  • Can recommend a strategy for donors, generally for the more sophisticated giver
  • Can help assess impact of donors
  • Can advise families on how to include next generation in giving also help families

Characteristics of DAFs:

  • Do not need to file 990s, often people are drawn to DAFs for this reason, for a variety of reasons they want to remain anonymous and this gives them the flexibility to do so
  • Foundations need to give away 5% of their assets on an annual basis, DAFs do not
    • Many of the supporting organizations collaborate to share this giving information to tell the story more clearly
    • 20% of assets of these DAFs are being given away annually
    • At Fidelity Charitable, 75% of dollars in a DAF account are granted out within 5 years of opening, 90% of dollars are granted out within 10 years of opening
  • DAFs were not included in IRS code until 2006 and still some gray areas depending on supporting organization
    • A DAF usually cannot pay for the cost of attendance/good and services for the donor, so they might use bifurcation – when you split a grant into two parts, eg for donor attendance to a gala, splitting the goods and services fees to be paid personally by the donor vs the donation portion of the fee, which can be funded by the DAF
      • Not all supporting organizations will bifurcate 
      • As a nonprofit you can invite them and charge them just the cost of attendance and then invite them to make a grant once they are there, which can come from a DAF
    • Previously a pledge could not be paid for via a DAF but that has changed with the recent tax law overhaul. Pledges can be paid from a DAF but there are stipulations about the terminology used in the written agreements around the transaction between the donor and the recipient, some supporting organization still prefer to not do this.

How do you get on the radar of Donor Advised Funds?

  • Pay attention to where the gifts you receive are coming from because chances are those donors have access to more funds, continue to foster your relationship with current donors
  • Share what you are doing with supporting organizations, particularly TBF
    • If a donor who uses a DAF expresses interest in a topic and you have shared the work you are doing in that field, the supporting organization can share your organization with the donor
  • Create and update your Giving Common profile, which exposes you to many Boston area donors
  • Make sure your website and web presence is up to date and active
  • Assure that your address of service is public on your web presence because DAFs can only send checks to the legal address that the IRS recognizes
  • Put PDF of annual report up on website, often the first thing a potential funder wants to look at to assess a potential nonprofit partner

 

Q&A Takeaways

  • Online presence i.e. social media, website, etc. is important because it is the easiest way to look for an organization, it’s also very important to keep your Guidestar profile up to date
  • International funding can be complicated because supporting organizations need to continue to do all of the due diligence, which can be more challenging if there is a language barrier
    • CJP does engage in international giving, particularly in Israel because they have Hebrew speaking staff that can conduct due diligence as well as they can in English
  • A DAF will rarely be restricted during a generational transition because most supporting organizations require you to establish the legacy of the fund when you open it
  • When keeping track of donations, record the supporting organization but soft credit where it came from ( can typically see the recommending donor on the check) to keep track of who has a DAF
  • When you are thanking donors on website/annual report etc, many supporting organizations would prefer to not be thanked because they are not the donors
  • Thank you letter can go to donor, not tax letter since that was handled through the supporting organization
  • Organizations like Vanguard and Fidelity are cause neutral- their database of nonprofits is built by donors who advise
    • versus TBF who will note organizations in region as they might align with donors’ interests
    • CJP is generally donor led as well but does have a database of emergency relief organizations because those recommendations need to be made immediately when something happens
  • DAF funding is about matchmaking much of the time – who the funder is and what they’re interested in, what their financials are like and looking for a viable match in an organization
  • DAFs do talk to each other, so there’s no need to plaster the universe with your information, they share resources on organizations

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