A Deep Dive Into Donor Advised Funds
📷 credit: Bernd Dittrich via Unsplash
We are often asked by clients, peers, and colleagues about how to select a donor advised fund (DAF) or which providers are on our short list. An increasingly popular alternative to a family foundation as a vehicle to manage giving, donor advised funds have been around since the 1930s. In this short guide, we will define DAFs, categorize DAF providers into a more accessible framework, and offer notes on some key services to review during the DAF research and selection process.
As RSF Social Finance explains:
A DAF is a charitable giving vehicle administered by a public charity created to manage charitable donations on behalf of organizations, families, or individuals. A DAF allows a donor to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund over time. Donors can contribute to the fund and recommend grants as frequently as they like.
Donor advised funds provide a tax advantaged giving vehicle compared to private foundations. Tax benefits vary based on the type of contribution:
When contributing cash directly to a DAF, the donor receives a tax deduction benefit of 50% of adjusted gross income, as compared to 30% with a private foundation.
When contributing gifts of stock or real property the donor receives a tax deduction of 30% of adjusted gross income for DAF contributions as compared to 20% with private foundations.
DAFs have no excise tax and private foundations hold an excise tax of 1-2% of net investment income annually.
Gifts made to DAFs are assessed a fair market value and private foundations are assessed a fair market value for publicly traded stock and are assessed on a cost basis for all other gifts, including gifts of closely-held stock or real property.
To learn more about the differences, the National Center for Family Philanthropy has a helpful article here.
Identifying your priorities for DAF selection
There are at least a hundred progressive DAF providers (and well over 1,000 DAF providers in total including most community foundations, womens funds, Jewish federations, and more) you might select from. Ktisis actively works with or has helped clients place funds at DAFs at a wide cross-section of providers including RSF Social Finance, Amalgamated Bank, Tides Foundation, Grand Rapids Community Foundation, Fidelity Charitable Gift Fund, Proteus Fund, North Star Fund, Marin Community Foundation, Liberty Hill Foundation, Impact Assets, and more. Working with these organizations and working in this space has provided insight into the strengths, weaknesses, philosophies, offerings, and priorities among DAF providers.
When working with a client, rather than start with the question of where a DAF should be housed, we encourage people first to focus on their priorities. Questions we might ask a client to consider look something like: Are you looking for a provider that offers full and wrap around services – such as fully digital systems, donor learning communities, investment advisory services; or, are you looking for a provider that is on the bleeding edge of community-focused philanthropy and provides incentives for spending more out of your DAF or granting to BIPOC communities? How much do you prioritize speed or minimizing costs or ease of recommending grants? Are you interested just in traditional 501(c)(3) giving or do you want to engage in other types of giving or investing through your DAF? How important is ideological alignment for you with your DAF provider and/or your point person? No DAF provider will meet all possible needs and priorities so getting clear on what offerings or distinctions matter most to you will make the selection process far easier.
Understanding the range of DAF providers
Today, the two largest categories of DAF providers by number of organizations and assets under management are national values-neutral charitable gift funds (many launched by traditional financial management companies) and community foundations.
National providers like Fidelity Investments, Charles Schwab, Vanguard, and Goldman Sachs sit in the first category. Fidelity Charitable Gift Fund is the largest charity in the world and many banks are now also offering DAF services to their clients. Similarly, there are some large DAF-only providers like National Philanthropic Trust – plus conservative providers to avoid, like Donors Trust or the National Christian Foundation, two of the major conduits to fund the far right.
Community foundations pioneered the DAF model (the first DAF was launched in 1931 at the New York Community Trust) and over 70% of the 900 community foundations across the United States offer a DAF service to their donors.
As a justice-oriented advisory firm, most of our clients come to us for help finding DAF providers that bring a higher level of values alignment than these two primary types of DAF providers. When looking beyond national financial firm-affiliated providers and community foundations, we find it helpful to think about DAFs in a number of buckets – these are not perfectly defined and many providers could be classified in more than one bucket, but this is a good jumping off point to start to wrap your head around the many providers out there.
Local progressive. Groups like the North Star Fund in NYC, Foundation for Louisiana, and Liberty HIll Foundation in Los Angeles or regional funds like the Southern Partners Fund fall into this category (there are at least 40+ local progressive DAF providers). Some have clearly defined progressive values that run the gamut from LGBTQ+ issues, BIPOC justice and racial healing, or the environment and climate justice while others support the full range of progressive nonprofits in their region. Additionally many but not all women’s funds, Jewish federations, and some community foundations like the East Bay Community Foundation or Brooklyn Community Foundation might be considered local progressive DAF providers. These local providers offer expertise, relationships, and insights into local funding that can be a boon for locally-oriented donors plus they will offer learning and networking opportunities for locally-based donors.
Issue Specific. While some donors prioritize giving to their home community or a specific geography to which they are connected, others are motivated by a specific issue and an issue-specific DAF provider can be the best match for their giving. For many issues clients have prioritized, we suggest looking at an aligned nationally-oriented issue-specific fund like the Peace Development Fund (nuclear disarmament, anti-war organizing and general social justice work), Ms. Foundation for Women, Global Fund for Women, Astraea Lesbian Foundation for Justice, Global Greengrants Fund, Thousand Currents (grassroots movements in the Global South), or Grassroots International (human rights & climate justice in the Global South). Additionally, many women’s funds prioritize progressive work in their local communities and some geographies boast an LGBTQ+ fund or an environmentally-focused local fund.
National progressive. There are a double handful of DAF providers with a progressive focus working on a national scale: large providers like the Tides Foundation, or small/mid-sized providers like the Proteus Fund, NEO Philanthropy, and the Common Counsel Foundation. There are others working on a national scale that we would categorize as slightly less progressive than those just listed but still left of center such as Rockefeller Philanthropy Advisors and Arabella/New Ventures. Amalgamated Foundation is a national progressive DAF provider launched by Amalgamated Bank; they host the Just Fund portal, which emerged out of the Solidaire Network and is a progressive alternative to the financial providers mentioned above. Possibility Labs has launched a BIPOC-led DAF program that centers racial equity and healing in their work. Often larger than their local counterparts, these providers offer a set of national relationships and an understanding of the national movement building field that can be valuable to donors seeking support for their giving that is not tied to a specific geography or issue.
Impact Finance providers. Finally, there are a handful of DAF providers that are leading with the offer to open a DAF that invests its assets differently. Ideologically they are generally liberal to progressive in their orientation and support DAF holders to fund nationally across a wide range of issues. Two of the largest with which we have had considerable (good) experiences with are RSF Social Finance and Impact Assets. Mission Investor Exchange can be a great resource for donors looking to explore impact investing, including support for DAF holders.
Additional considerations when selecting a DAF
Beyond clarifying priorities and considering which type of DAF may best align to those needs, below are a few additional issues that often arise with clients we advise:
Giving across geographies. Any local or national DAF providers will happily make grants to registered 501(c)(3) charities anywhere across the country. Local providers generally pitch their local expertise, but their DAF holders regularly advise grants beyond their geography. However, if you want to do international grantmaking, you should check with the DAF provider about what they will or won’t do – some will do no grantmaking outside the US, some will only make grants to groups that have a pre-established equivalency determination (a IRS-regulated process to prove charitable eligibility), while others will undertake work on your behalf to give to new international recipients.
Advocacy giving. With the rising importance of investing in advocacy, organizing, and voter engagement, more and more donors are exploring ways to support this work. While a considerable amount of advocacy work can be carried out by 501(c)(3) nonprofits which any DAF can fund, some work can only be undertaken by a 501(c)(4) social welfare organization. If this type of giving is of interest, a small handful of DAF providers will support c4 grantmaking (and a couple have even begun providing c4 DAFs although those are more for administrative convenience as they offer no tax deduction).
Aligned investments and impact investing from your DAF. Obviously, the Impact Finance providers discussed above have very robust impact investing options from a DAF. However, an increasing number of progressive local and national providers (and many of the issue-specific providers) have robust overall ESG/SRI investment policies for all of their assets, which include their DAFs – but you should check with the specific provider to confirm. It varies by provider if they will allow you to invest your DAF assets outside of their general investment guidelines, often if you create a DAF with assets above a certain threshold.
If you are interested in learning more or exploring specific DAF providers that might fit your needs, please feel free to reach out to us to set up some 1:1 advising time.