Sarah Ruef-Lindquist, JD, CTFA
SRuefLindquist@AllenFG.com

Early in the first quarter of 2018, I wrote that I thought that the doom and gloom predictions of the impact of 2017 tax reform on charitable giving were overstated. People give largely due to charitable intent, not because they got an income tax deduction for it.

Sure, there are some who may find that tax treatment an additional benefit, but would they not make a gift because their charitable income tax deduction was displaced by a $12,000 (individual) or $24,000 (married filing jointly) standard deduction?

Come to find out that I was not alone in my contrarian view. “Dire Predictions That Tax Reform Will Depress Giving Appear to be Wrong – At Least So Far” confirm that view, according to Inside Philanthropy’s Holly Hall in her Jan. 14, 2019 blog post. 

With the input of various United Ways, a Jewish Federation in Arizona and several community foundations, Hall heard of record-breaking third quarter 2018 donation levels, and high 2018 giving levels overall.

Several factors may have contributed to this high giving level: Low unemployment, strong stock market performance until the last quarter of the year, and donors aged 70½ and older taking advantage of Qualified Charitable Distribution from IRAs.

What is in store for 2019 we are not yet willing to predict; unprecedented stock market volatility and record-long federal government shutdown that continues as of this writing could impact giving numbers in 2019.

Sarah Ruef-Lindquist, JD, CTFA
SRuefLindquist@AllenFG.com

The 2018 Donor Advised Fund Report of the National Philanthropic Trust (www.nptrust.org), published online in November 2018, provided key data for understanding the history, meteoric growth and increasingly significant impact of Donor Advised Funds (DAFs) in the financial and philanthropic landscapes.

You can click here to access highlights and link to the full report. Here are some of the key data points:

Grants from donor-advised funds to charitable organizations reached a new high in 2017 at $19.08 billion, representing a 19.9% increase over 2016. This is not an anomaly; the compound annual growth rate from 2012 to 2016 was 16.9%.

Contributions to DAFs in 2017 were $29.23 billion, an increase of 16.5% over 2016, and part of a trend shown by a compound annual growth rate of 15.7% from 2012 to 2016. It is likely that some of this 2017 activity was 11th hour/late December DAF gift activity stimulated by the December 2017 tax reform going into effect for 2018 which increased the standard deduction such that tax efficiency of taking charitable contributions as an itemized deduction was eliminated.

Moreover, DAF assets totaled $110.01 billion in 2017, a 27.3% increase over 2016. And the number of funds as of 2017 is almost half a billion, exceeding 463,000.

In the recent past there were murmurings about possible increased regulatory involvement (read IRS oversight) such as minimum spending rules (private foundations are subject to an annual 5%-of-assets spending rule). Yet aggregate grant payout rates annually exceed 20% for every year of record.  Most recently, 2017 showed a 22.1% of assets payout rate.

A Jan. 2, 2014 article in the Stanford Social Innovation Review reports that private foundations give more than 5% of assets annually in grants, but still at about half the amount given by DAFs in proportion to assets.

There’s a lot of good news here. Donor Advised Funds are a less cumbersome means of philanthropy than private foundations, and given the high percentage of assets being distributed in grants annually, translates into good news for organizations seeking grants. Most DAFs are housed either in community foundations or charitable gift funds connected to investment firms like Fidelity, Vanguard or Commonwealth Financial Network.

What are strategies for accessing the grant potential within DAF’s?

1. Pay attention when you see a donor using a DAF to make a gift to your or another charity. Develop a relationship with staff that administers the DAF to be sure they know about the work your organization is doing, as they may have other DAF advisors who would find your mission and programs compelling. This is doable at places like a community foundation local to your organizations, but not so much with the larger national funds.

2. Determine if there’s a process to seek funding through the DAF program at your community foundation. Some community foundations refer grant applications to the general grant making programs to DAF advisors and thereby increase the likelihood of funding by increasing the potential resources for funding.

3. Even if a DAF makes a grant to your organization anonymously, send a thank you note to the organization staff asking them to share it with the donor. It’s a mistake to think that just because the IRS doesn’t require an acknowledgement of DAF or you don’t know the donor or advisor’s identity that a thank you would not be appropriate or welcome.