Families face choices when it comes to how to do their philanthropy. They give in different ways using different vehicles. Yet, behind every careful decision there lies a heartfelt longing. Donors are eager to do good in the world and to express the values of their family members and loved ones. Plus, they want to create and nurture a legacy—one that lasts beyond this lifetime.
An early choice every philanthropic family must make is: What is our purpose as a philanthropic family? What do we want to accomplish? How can we make gifts in a way that meets our needs and the needs of those we want to serve? These are important questions!
Over the last 20 years and increasingly today, many families are choosing donor-advised funds (or DAFs, for short) as a way to meet their philanthropic goals. Some want a convenient low-cost way to manage their giving, or to tap into the expertise and networking opportunities that some sponsor organizations offer. Others already give through a private foundation, but may wish to give anonymously, outside their foundation’s mission or geographic focus, or receive maximum and immediate tax benefits. Still others wish to use DAFs to teach the next generation to be responsible inheritors and givers, to keep their family together over time, to enhance their engagement in advocacy, or to streamline their international giving. For these families and more, DAFs can make for a meaningful—and effective—way to give.
At the most recent count, an estimated $110 billion is in DAFs in the U.S., granting more than $19 billion annually to non-profits. While this number may sound small compared to the $715 billion in assets held in private foundations granting $52 billion (Foundation Center, 2014), each year, both the number of DAFs and the charitable dollars granted from DAFs are going up—making DAFs the fastest-growing vehicle in philanthropy. In 2000, for example, there was a $10.2 billion endowed in DAFs, granting $1.4 billion (Chronicle of Philanthropy, 2001). In other words, DAFs today endow roughly ten times what they did 18 years ago. In addition, despite the fact that the IRS does not require an annual payout amount from DAFs, data shows that aggregate grant payout rates from donor-advised funds annually exceed 20 percent for every year on record, with a grant payout rate of 22.1% in 2017. (Source: 2018 Donor-Advised Fund Report, National Philanthropic Trust)
Find more readings and data on the use and effectiveness of donor advised funds here.
Why the spike in growth and the consistent and continued high payout rates? Two reasons remain steadfast: the sheer ease of giving through a DAF (the sponsor organization administers the fund), and the fact that donors take an immediate tax deduction for what they contribute to a DAF—even though they can choose to give later. And a third, increasingly important, reason is the growing number of financial and wealth advisors with seamless access to DAFs as part of the portfolios they manage.
Beyond that, supply may have influenced demand. The number of sponsor organizations offering DAFs has exploded in the last two decades; today there are more than 1,000 known organizations offering DAFs for more than 460,00 individual donor-advised funds.
This resource provides guidance for donors and families considering donor-advised funds. Whether you are a donor exploring a DAF or a philanthropic or wealth advisor working with families, this guide is designed to help you gauge whether a DAF is the right tool.
Please note that this resource includes links and examples for informational purposes only, and not as an endorsement of any of the funds mentioned or referenced.
What’s in the Donor-Advised Fund Guide?
Find answers to the following questions and more:
- What are donor-advised funds (DAFs)?
- When is the best time to start a donor-advised fund?
- What are the principal uses and benefits of donor-advised fund?
- What are the important limitations and restrictions to using a donor-advised fund?
- What are sponsor organizations and what are the different types of sponsor organizations for donor-advised funds?
- What services do sponsor organizations for donor-advised funds typically offer?
- What questions should donors ask themselves before opening a donor-advised fund?
- What questions should donors ask their advisors when considering setting up a donor-advised fund?
- What questions should donors ask potential sponsor organizations when considering setting up a donor-advised fund?
- How do donor-advised funds compare with private foundations and other family giving vehicles?
Donor Advised Fund Impact Stories
There are many and varied reasons donors and families choose DAFs. Here are a selection of real-life success stories highlighting some of the many reasons the DAF structure is so popular:
Giving Up a Lifestyle to Give Back: The Salwen Family
In 2007, the Salwen family— Joan, Kevin, Hannah and Joseph— were living a busy life in Atlanta, Georgia. One day, Kevin and fourteen-year old Hannah saw a homeless man in their neighborhood at the exact moment a shiny Mercedes coupe pulled up. “You know, Dad, if that guy didn’t have such a nice car, that man there could have a meal,” mused Hannah. It was this question that inspired her family to do something extraordinary. Read more here.
Ending Poverty through Multiple Giving Vehicles: Anne and Terry Guerrant
Anne Guerrant is a former pro tennis player, and a founder of the Women’s Tennis Association with Billie Jean King and other women’s rights pioneers. Today, she is a global philanthropist with both a family foundation and donor-advised fund dedicated to lifting women and their families out of poverty. Read more here.
Impact Investing Fund: The New Hampshire Charitable Foundation
The New Hampshire Charitable Foundation’s Impact Investment Fund offers a strategic way for foundation donors to pool charitable resources, invest in local communities and earn a financial return. Read more here.
Donor-Advised Funds for a Variety of Purposes: Examples from the Oregon Community Foundation
Laura Winter served for many years as Vice President for Donor Relations at The Oregon Community Foundation. In this collection of case examples based on one or more real-life donors (names and other details have been changed to protect anonymity of OCF donors), Laura shares insight into many of the various reasons that donors and families establish DAFs as a core part of their philanthropic strategy. Read more here.
Engaging Donors in Impact investing to Leverage Local Impact: Central New York Community Foundation
The Central New York Community Foundation began its journey into impact investing in 2016, when its board approved a policy governing the practice. The foundation can now allocate up to 5% of its general funds towards loans, loan guarantees, nonprofit equity investments and other impact investment strategies and engage donors in these opportunities through their donor-advised funds. Read more here.
Continuing a Legacy, Connecting to Community: Gary & Sue Schwartzman
It was a death in the family that inspired Gary and Sue Schwartzman to think about donor-advised funds for the first time. “When my father in law S.J. Schwartzman passed away, my husband Gary became the prime signer on two donor-advised funds that his dad had held,” says Sue Schwartzman, a youth and family philanthropy expert at Schwartzman Advising. “At that point, we didn’t have our own fund, although we donated annually in a significant way too many organizations. When my father-in-law left these two funds in our charge, it connected us to his legacy. He wished for his generosity and family name to live on.” Read more here.
Giving Internationally through Two DAFs: Sasha Rabsey and the How Fund
Sasha Rabsey’s passion for philanthropy was born in the bush of Africa. “My at-the-time 17-year-old daughter and I went to Ghana for a volunteer experience, and it was nothing like we expected. The staff of the organization disappeared for a week and we were left to care for 15 kids, six of whom were HIV positive. We had no healthcare experience and there were no protocols in place. It was a pivotal experience that opened my eyes to the pitfalls of development and philanthropy. Read more here.
An Evolving Vehicle for Developing Younger Generations for Philanthropy
The R. Howard Dobbs, Jr. Foundation is the legacy of Howard Dobbs, Jr., a lifelong Atlantan who was a respected businessman, a civic leader, and philanthropist. As Mr. Dobbs grew older and began making decisions about the long-term future of the family foundation he’d established in 1959, he turned to his nephew and nieces for leadership. With the conviction that the foundation should be managed for perpetuity, it was determined that board service by members of succeeding generations would be considered a privilege and not a right; the Dobbs Fund at the Community Foundation for Greater Atlanta was established in 2002 in part to provide a philanthropic training ground for succeeding generations. Read more here.
Helping Geographically Dispersed Family Foundations Give Locally
With three generations of family leadership spread across four states and two continents, the O.P. and W.E. Edwards Foundation faces a common challenge — keeping its far-flung board members engaged connected to its grant making. The foundation, which is based in rural Red Lodge, Montana, focuses its grant making on early-childhood issues, education, and Native American issues—and its board members pride themselves on having a personal understanding of the organizations and issues they fund. Read more here.
Sharing Values with the Next Generation: The Bradbury Family
For the Bradbury family, a donor-advised fund has allowed the family to become deeply involved in philanthropy together. David Bradbury and his wife Nancy established a donor-advised fund at Fidelity, and they invited their two grown sons and their families to make annual recommended grants. Read more here.
Easing Family Dynamics: A Success Story
One of the options available when family members just don’t get along is the formation of separate donor-advised funds at a local community foundation or other sponsor organization, as described in this case study from the New York Community Trust. Read more here.
Using a Donor-Advised Fund To Donate Rare Items
The story of two rare watches, the inventor of cruise control, and a charitable gift to establish a family’s philanthropic legacy. Read more here.