Donor Advised Funds Drive Charitable Giving

Donor Advised Funds Drive Charitable Giving

Daniel Wheeler first set up his Donor Advised Fund in 2000. “It was a timing issue,” he said. “We had some extra income that year. The Donor Advised Fund provided a means to spread out the donations while getting the tax benefit when we needed it.”

Daniel Wheeler and Amy FoxWheeler and his wife, Amy Fox, have made more than 50 donations through their fund in the last 12 years, including several to Wistar. He was introduced to Wistar’s work through his father-in-law, longtime supporter, board member and current chair of the Building Wistar, Changing the World campaign, Robert A. Fox.

Andrew Swinney, President of The Philadelphia Foundation, suggests that the Donor Advised Fund is an excellent option for people who to be active philanthropically and are looking for an efficient, flexible vehicle.

“The Donor Advised Fund came into being in 1969 following some changes in the tax code, but didn’t really become a popular option until the late ‘80s and the ‘90s when a number of banks and investment firms made them available,” Swinney said. “Today, many charitable organizations sponsor them as well. They have become a very successful way of gifting.”

A Donor Advised Fund works this way. The donor makes a charitable gift in a lump sum to the fund. He or she can then take the full tax deduction for that money in that year— but the grants can be made over a period of years to different organizations in different amounts. Once the gift is made, the donor legally gives up control of the money to the sponsoring organization, but can advise or make recommendations on how and when it is used. While there are several limitations, the standard is for the gifts to be made according to the donor’s recommendations. Donor Advised Funds are not legal entities and do not require any specific structure such as a board of directors.

“Some people see that lack of control as a negative,” said Wheeler, “but we have never had any problems. All of our donations have been made as requested.”

Donor Advised Funds cannot be used to honor pledges made to an organization, and the donor cannot derive any benefit from the gift. Gifts of this type, for example, are not appropriate for buying tickets to events.

“I have never seen our Donor Advised Fund as a substitute for other types of giving,” said Wheeler. “We use it to make smaller gifts, but continue to make other gifts as individuals, such as the pledge we made to Wistar’s building campaign.”

Swinney views the Donor Advised Fund not just as a convenient means of making donations over a period of years, but also a potential stepping stone to a larger commitment. “We like to think about this more broadly,” he said. “We hope that the individuals who set up these funds will consider leaving their estates to the charitable organization when the time comes. Our goal, of course, is to build an endowment and, at its best, the Donor Advised Fund is one pathway to doing that. These funds often provide a mechanism for donors to get involved in philanthropy at an earlier age in a flexible, hassle-free way.”

Swinney recommends the Donor Advised Fund as an option for people who want to make a commitment over a period of several years and do not have the means or interest to set up a private foundation. The minimum commitment is generally in the $10,000 range and most Donor Advised Funds maintain between $125,000 and $250,000 in assets. By contrast, a private foundation usually requires minimum assets of $500,000.

Wheeler agrees. “Donor Advised Funds are an excellent choice for people like ourselves. This gave us a great start for charitable giving. We have continued to add to our funds and make donations, and it has been incredibly useful. It is so easy. We do everything online. I can complete the gift in five minutes.”

Swinney adds, “Donor Advised Funds can be more transactional than relational. For people who are interested in building relationships with the organizations that they are supporting, we recommend considering establishing their fund with the organization or a foundation. That ensures that the donor is informed about the work being done there and more involved in its activities.

For more information about these donor options at Wistar, contact Peter Corrado, Vice President of Institutional Development at corrado@wistar.org or 215.898.3771

In the next issue of Focus —how creating private foundations brings families together and provides an excellent option for charitable giving.