Do you know where $160 billion dollars is sitting?
Meet the DAF. Short for “Donor Advised Fund.” Donor-advised funds are a unique philanthropic tool that allow donors to establish and fund a charitable account with a sponsoring organization that will be used later to support charitable or impact-focused activities. Donors receive an immediate tax deduction and maintain advisory privileges over both the fund’s investments and ultimate distribution for charitable or impact purposes. In return, the sponsor gains control and authority over management of the fund. DAFs may not be widely known, but they are the fastest growing form of charitable spending in America, according to the National Philanthropic Trust.
DAFs also hold an estimated $160 billion of charitable dollars — or a bit above the net worth of Bill Gates (he’s at about $133bn right now). Yowza.
How DAFs are different from Foundations:
High-level, both DAFs and Foundations are vehicles that allow for charitable giving. Here are some of the key differences between the two (see more info here if you’re curious):
COSTS/ADMIN: There are minimal/no set-up costs for a DAF and much lower management fees vs. a Foundation, allowing almost anyone to open up their own DAF (you could today with Fidelity for example); you can seed a DAF with as little as $5k, whereas Foundations require significantly more capital and have higher legal and admin fees.
DISTRIBUTIONS: Foundations mandate that 5% of assets be donated each year; there is no minimum annual donation amount from DAFs.
PRIVACY: Foundations are public entities (in that they must file annual reports and disclose information around board, grant recipients, etc.), while DAFs can be anonymous.
TAXES: The tax deduction for cash contributions to a DAF is 60% of gross income, and for a Foundation is 30% of gross income.
Why I like DAFs, and why some don’t:
There is a view that because DAFs don’t have a yearly distribution requirement, there is a delay in grant making vs. that for Foundations. I hear this viewpoint, and think there is work to do to make moving money out of DAFs more attractive (and this is a main reason Rise Together was started). However, here are some other points to consider:
Despite not having a minimum distribution requirement, DAFs have a payout rate that is consistently above 15%, whereas private foundations hover around 5% (the legal payout federal mandate);
A donor’s timeline may vary: some may prefer to make a series of small annual grants to sustain a small community organization that couldn’t manage a large one-time gift, while others may be strategically growing their assets in a DAF (which are invested) for a larger gift in the future;
Many DAF donors are those new to philanthropy — and as such may not have identified which causes or strategic initiatives they are passionate about supporting. Time allows them to evaluate a broader range of causes vs. making a rushed but safer decision like donating to an alma mater (that arguably has less social impact).
Why DAFs are important to Rise Together and early stage companies:
As DAFs are much less complicated and resource-needy than foundations, they support many of the non-profit arms of for-profit businesses. For companies like Procore, Flexport, Twilio, Riot Games, Okta, (even Google!) — which each have their own .org — there is a DAF behind that .org supporting their impact initiatives. Fiscal sponsors like Tides.org (founding partner of Pledge 1%) and ImpactAssets can offer DAF advisory and sponsorship, as well as strategic guidance, to companies not yet at the scale of a massive public company like Starbucks or Coca-Cola that has the resources to prop up a Foundation. I like to think of DAFs as an outsourced platform by which companies can implement strategic impact initiatives — and we at Rise Together hope to support for-profit businesses to leverage this tool to set up their own impact programs.
There is so much more that DAFs can and should support on the for-profit side of things (yes, you can use DAF dollars to make investments in for-profit businesses).