Jews and Donor Advised Funds: A Popular Vehicle

by Robert I. Evans and Avrum D. Lapin

Although available for at least several decades, Donor Advised Funds (DAF) are generally considered a contemporary giving methodology for many philanthropically-focused donors today. As we approach year-end giving we wondered if Jewish donors were adequately taking advantage of the option. A survey of several organizations featuring DAF’s suggests that 2011 will be another record year for creating new DAF’s and where additional assets are contributed into existing DAF’s.

Attracting some attention recently from cynics as well as the Internal Revenue Service (IRS) because of the belief that some people are using DAF’s as a personal bank account where they receive charitable tax deductions but are not especially philanthropically active, DAF’s are generally available for almost all donors who are seeking assistance in making intelligent, well-reasoned charitable choices. Those who criticize DAF’s – along with foundations – charge that the assets of these funds serve as warehouses for dollars and slow down the pace of charitable giving … primarily for momentary tax benefits.

Today, DAF’s are among the fastest growing and most flexible option for many savvy philanthropists. With an annual distribution rate of 17.1% in 2010, four times higher than that from foundations, DAF’s enable donors to receive assistance in making wise giving decisions at a very low cost for services and at low “entry points.”

DAF’s allow an individual (or a family) to create a special tax-deductible account through which charitable gifts can be suggested. Depending on the sponsoring organization, minimum amounts range from $5,000 to $25,000, significantly lower than creating a foundation or a supporting organization. The sponsoring organization that administers DAF’s retains legal controls over the dollars and handles the investment of funds contributed. But DAF’s do exist to serve as a conduit to guide support for legitimate nonprofits, a process done by careful management, integrative research tools and professional advice. Contributors to DAF’s request distributions from their funds and a decision-making group that oversees the funds they manage on behalf of a large pool of donors ultimately makes the decisions.

Those who create and give to DAF’s see many advantages:

  • An immediate tax deduction, up to 50% of adjusted gross income for cash or 30% for appreciated assets;
  • Using many types of assets – in addition to cash and appreciated securities – to distribute gifts to nonprofits;
  • Donors can identify successors to continue family involvement and philanthropic commitment;
  • They are Inclusive of most types of nonprofits;
  • Allow for a diversified investment to help grow giving capacity.

While there are estimated 152,000 DAF accounts across the US, representing over $25 billion in assets, we wondered about the presence of DAF’s involving Jewish donors. Probably the largest sponsoring organization for DAF’s is the Fidelity Charitable Gift Fund, an arm of the Fidelity Family of investment funds. They have set much of the methodologies that other organizations follow today, effectively managing nearly 20% of all DAF’s in the US.

The largest Jewish DAF is the Jewish Communal Fund in New York, with $1 billion under management.

In our review, we reached out to a few Jewish DAF experts to determine what they are seeing in 2011 and what their projections may be for 2012. Each represents hands-on work with Jewish donors and has years of experience in the DAF arena. We spoke with Sharon Lindsey, associate director for planned giving and endowments at the Jewish Federation of Palm Beach (Florida), Eileen Heisman, CEO of the National Philanthropic Trust (NPT) in Jenkintown, Pennsylvania, and Laura Linder, Executive Director of The Jewish Foundation of Memphis.

Each of these professionals agreed about the simplicity and streamlining process of DAF’s. Although their views on the general concepts and ease of DAF’s were consistent, their execution varied. Ms. Lindsey focused on the ease of contemporary tools available to facilitate making decisions and enabling donors to add to their DAF’s. At the Palm Beach Federation, donors are able to access online research in helping them reach decisions on which nonprofits to support. She emphasized that the federation is really hoping to assist younger donors, many of whom may not have experience in giving. The Palm Beach Federation allows for DAF’s to begin at $5,000 and they have more than 200 accounts today. Assets are growing, she notes, and she is working actively to reach out to more who wish to create DAF’s.

At National Philanthropic Trust, where Eileen Heisman serves as president and CEO, creating a DAF requires an initial investment of $25,000. “DAF’s can be a value because of the anonymity of giving but it’s also a way to foster multi-generations of donors,” she said. NPT has more than 2,500 DAF’s under management, with 15% of them “probably” Jewish donors. Assets raised by NPT since 1996 amount to more than $2.6 billion. Parenthetically, she observed that a number of Jewish donors have identified stem cell research in Israel as a prominent cause they support generously.

In Memphis at the Jewish Foundation, which has no direct affiliation with the local Jewish federation but where contributions to new or existing DAF’s is up at least 6% over 2010 and are on track to exceed $3.6 million, Laura Linder echoed similar sentiments about fostering multi-generational approaches to philanthropy. Her agency manages 250 DAF’s, with 25 representing three generations of families working together to make “intelligent and well-reasoned charitable decisions.”

Each of the three experts focused on organizations their donors are supporting, especially in the Jewish community. Ms. Linder estimated that 80% of the organizations receiving dollars from the DAF’s they oversee are Jewish local, national or Israel-focused nonprofits. “Although the majority of our grant dollars support Jewish organizations, our donors – the majority of whom are Jewish and most of whom live in or near Memphis – also support the whole community and regularly recommend grants to be directed to non-Jewish agencies.” But her focus is creating dynamic programs to emphasize Jews making gifts, especially to Jewish projects. They have created easy “entry points for younger Jews, and today 150 teenagers who wish to enter into the world of grant-making need only a minimum of only $250 to create a special DAF. The Foundation has secured an anonymous donor who then matches that total to start the account at $500. It is a good lesson in tzedakah, our approach stimulates giving by younger donors, and hopefully develops good habits for the future,” she says.

One of the advantages of creating a DAF is the ability to choose the growth risk for the assets of the specific account. Very similar to retirement planning, advisors suggest different levels based on how much a donor intends to contribute and how frequently contributions will likely be made. At the Palm Beach federation, Ms. Lindsey noted that the most popular path of risk is their long-term Investment Pool, which offers a broad diversification and is designed to support annual distributions of five percent. Offering some flexibility, the Palm Beach Federation – like almost all other DAF management operations – enables donors to transfer assets between and among various investment funds.

Not all donors use cash or appreciated securities to create and add to their DAF assets. Ms. Linder spoke about an individual who recently added to her longstanding DAF by contributing a piece of Tiffany glass. On behalf of the donor, the Foundation handled all details relating to auctioning off the valuable piece, the proceeds went directly into her account and the donor received a handsome current tax deduction. More importantly, the donor had great ease of receiving more dollars easily to distribute to desired charities.

There are very few disadvantages today to creating and utilizing DAF’s but the three women we contacted all agreed that DAF’s are not useful if donors intend to make a one-time gift or if they do not want to limit their controls on charitable gifts because once they add dollars to a DAF they can only request or recommend where charitable gifts can go since the sponsoring organization manages all decisions. Gifts can only be directed to IRS approved nonprofits, an important part of restrictions. And while it seldom happens, donors cannot withdraw monies for personal benefits nor can dollars benefit personal projects outside of nonprofits.

Robert I. Evans, Managing Director, and Avrum D. Lapin, Director, are principals of The EHL Consulting Group, of suburban Philadelphia, and are frequent contributors to EHL Consulting works with dozens of nonprofits on fundraising, strategic planning, and non-profit business practices. Become a fan of The EHL Consulting Group on Facebook; TWITTER: @EHLConsultGrp

An earlier version of this article contained an incorrect amount under management for the Jewish Communal Fund in New York.