When Chris Spaugh moved from a banking career specializing in philanthropy to a job leading a nonprofit, he brought with him expertise in sophisticated ways to help people give. The first he set out to import: a donor-advised fund.
“I knew I’d want it as a tool for my donors,” says Spaugh, who last summer became CEO of Moravian Ministries Foundation, which raises money for churches and organizations affiliated with the Protestant denomination.
Within a few months, the Moravian Donor Advised Fund was launched. It now has six accounts, including a few started with multimillion-dollar contributions.
Moravian’s foray into donor-advised funds — accounts into which people can contribute assets, take an immediate charitable tax deduction, and later decide which nonprofits will get the money — comes at a particularly auspicious time for the already wildly popular giving vehicle.
Fidelity Charitable, the nation’s biggest holder of donor-advised funds, recently announced it collected contributions of $8.5 billion last year and saw the number of new donors opening accounts soar by 83 percent.
Other major commercial funds, like Schwab Charitable, and community foundations, which were among the first decades ago to provide donor-advised funds, also have reported accelerated growth. The markets’ feverish performance of late, along with recent changes in the tax code, are among the factors fueling the rise, fundraisers say.
And now, more and more nonprofits want a bigger piece of the bonanza. Instead of watching from the sidelines as their donors set up accounts elsewhere, nonprofits not traditionally in the business of donor-advised funds are establishing them. The trend is not new — places like the Nature Conservancy and Cornell University have had in-house funds for years — but it has been picking up.
“We saw the writing on the wall,” says John Hayes, a senior vice president at the American Heart Association, which started a donor-advised fund in November. “We aren’t competing with the Fidelities, but since everyone is talking about [donor-advised funds], we wanted to offer our donors a way to connect with us, our mission when they are thinking about this, a good and popular way of meeting their philanthropic goals.”
Hayes and other fundraisers say the appeal of in-house funds is growing along with donor interest in them.
Baby boomers who are in the midst of a vast transfer of wealth appear to favor creating donor-advised funds over foundations, fundraisers say, and millennials, who are coming of major-donor age, tend to gravitate toward the kind of hands-on philanthropy the funds offer.
The new tax law, which may encourage individuals to bundle charitable giving in one year and skip giving the next to take better advantage of tax breaks, are also drawing more attention to donor-advised funds.
And with so many high-net-worth donors likely to have investments gains these days in private equity, real estate, and, even, cryptocurrency, donor-advised funds, which typically can handle complex assets, are increasingly on the radar.
Help From Companies
Nonprofits looking to add a donor-advised fund to their planned-giving plate have a growing number of options to help them do so. Business is brisk for third-party vendors that fully create and manage so-called private-label funds or that provide an array of back-office services for nonprofits largely running their own.
Renaissance Charitable Foundation and its philanthropic-services arm, for example, attracted 16 new nonprofit donor-advised clients in 2017, a healthy year for the group, and it is already outpacing that number this year. At the same time, the outsourcing market continues to attract new players. The latest entrant: TIAA Charitable, created in 2016 to offer donor-advised funds to individuals, in January began providing private-label donor-advised-fund services to nonprofits.
“The level of interest has been significant and broad based,” says Chris Carnal, CEO of TIAA Charitable, which largely works with colleges and universities.
Values and Investments
But critics of donor-advised funds question whether the costs and potential hassles make them worth bringing in house.
Alan Cantor, a consultant and a Chronicle opinion contributor, says that nonprofits are putting their own values and reputation on the line when they manage funds that donors can use to make contributions to other causes — causes, he notes, that could be at odds with the nonprofit’s mission.
At Moravian Ministries Foundation, a special three-member committee of the foundation’s governing board must ratify every grant, which, Spaugh says, must be “considered consistent with the foundation’s values.”
“Human rights is important in the Moravian context,” he says, for example, “so a request to give to any type of white supremacist organization or something like that, that is totally contrary to what the foundation stands for, would be rejected.”
To avoid disappointing donors down the road, Spaugh says, the foundation “carefully sets expectations very clearly from the start” through discussions, written gift agreements, and policy statements and guidelines.
But although clearly communicating the rules, restrictions, and expectations on all matters upfront is a good idea overall, Spaugh and other fundraisers say the likelihood of conflicts of interest over where donor-advised funds are distributed is low.
Donors with funds at American Heart are not allowed to give to charities that promote smoking — a policy donors are likely to agree with anyway, especially as one of the fund’s selling points is an investment strategy that avoids tobacco-related holdings.
In fact, says Hayes, the heart association was motivated to start its own donor-advised fund in part to give donors the opportunity to have their gift money invested in line with their interests. After automatically investing donor-advised-fund money inside one big endowment fund for years, the Nature Conservancy now gives donors a choice of different investment funds and allocations.
“It’s one of the advantages of having your own DAF,” says Nev Major, the conservancy’s director of gift planning administration. “You can customize it in a variety of ways that you determine best serve your donors and your organization.”
How Much Should Charity Get?
But sometimes settling on the best policies to govern in-house donor-advised funds can be tricky.
The launch of one large nonprofit’s fund was delayed recently because of bickering over what the rule ought to be about the share of gift money required to ultimately go to the organization itself.
Minimum allocations at in-house funds around the country vary from no requirement — meaning none of the money need be distributed to the host organization — to as much as 70 percent. Some leaders at the nonprofit starting the new fund wanted to require a 50 percent minimum allocation, but fundraisers pushed back.
“They worried it would be a deterrent, [whether] they could market it with this rule,” says a staff member, who asked not to be identified because of the sensitive nature of the disagreement. “It’s not that they worried that we’d get at least 50 percent of the gift at some point, but that donors wouldn’t want to be told what they had to do.”
The group ultimately decided to stick with the 50 percent requirement, and the new in-house fund will be promoted in the coming months, just slightly behind schedule.
At Moravian, Spaugh was able to fast track introducing a donor-advised fund not only because of his financial skill, but because an interested donor was practically waiting at the door. The donor had farm property he wanted to sell immediately for tax reasons, but he wanted to use the proceeds to give to international education programs that he and his family could visit over time. A donor-advised fund was the perfect approach for the donor, Spaugh says, and his foundation colleagues quickly agreed. The donor was the first to set up an account with Moravian’s new in-house fund, and he has since made distributions to a Moravian seminary and a school, both in the United States. He plans to visit a Moravian school in Jamaica this spring.
Spaugh describes the donor and his wife as “very motivated,” knowing, he says, “what they wanted to do with their philanthropy” and their real estate.
“Someone would have given them what they wanted if we hadn’t been able to,” Spaugh says. “This [in-house donor-advised fund] was right.”
Correction: This article was amended to correct the spelling of the last name of TIAA Charitable’s CEO. He is Chris Carnal. We have also clarified the section in the first box about changing the rules to specify who gets credit for donor-advised funds at a big public university.
