As donor-advised funds grow in popularity among individual donors and companies, so do misconceptions about their purpose. Separate DAF myths from DAF facts with GlobalGiving’s Sarah Groninger.
Since the 1930s, donor-advised funds, often referred to as DAFs, have provided individuals and companies with a mechanism to give philanthropically. The legal structure for these funds wasn’t established by Congress until the late 1960s, and their popularity didn’t begin to rise until the 1990s.
Growth in giving through DAFs has recently started to outpace growth in traditional giving, and DAFs are getting a lot of attention in philanthropy circles. Charitable giving in the United States totaled more than $390 billion in 2016, growing 2.7% over the previous year, according to report from Giving USA. In that same year, Giving USA found contributions to donor-advised funds grew 7.6% to $23.27 billion, almost tripling the overall charitable growth rate.
Want to know more about this growing charitable vehicle? Let’s start with five common myths about DAFs, followed by the facts:
1. DAFs are just a fad.
New York Community Trust established the first donor-advised fund in 1931. Fidelity Investments formally institutionalized this charitable vehicle in the 1990s when it created its DAF offering as an independent public charity and introduced DAFs into the mainstream financial sector. Today, DAFs remain the fastest-growing giving vehicle in the U.S.. In 2016, grants disbursed from donor-advised funds reached a record high of $15.75 billion. This figure represents a 10.4% increase compared to the $14.26 billion disbursed in 2015. Donor-advised funds have been around for decades.
2. You can’t give internationally through a DAF.
While most DAFs are set up to facilitate domestic charitable giving, there are a few organizations that offer international grantmaking. And those that aren’t set up to support domestic and international giving typically partner with an intermediary organization—like GlobalGiving—that is a registered charitable entity in the United States which is also able to process grants abroad. Giving through an intermediary provides an added layer of risk mitigation for the donor and an international disbursement mechanism for the fund, ultimately increasing the donor’s global reach.
3. You have to be a millionaire to set up a DAF.
Quite the contrary, in fact. The minimum amount needed to open a DAF varies widely among funds. With as little as $5,000, you can set up a donor-advised fund with Fidelity Charitable Gift Fund or Schwab Charitable. Most local community foundations also offer DAFs, although their minimums vary and tend to be higher than at that of Fidelity and Schwab. DAFs also tend to have lower overhead and can be a viable alternative to starting a charitable foundation.
4. You need to partner with a big financial institution to open a DAF.
While most traditional financial institutions offer this charitable vehicle, your local community foundation likely also has a DAF offering. Almost half of the $31 billion nationally invested in DAFs in 2007 was invested at community foundations.
5. Through your DAF, you can give to any charity you want.
Like with any charitable giving, you want to have confidence that the charities you support through your DAF have been vetted. Partnering with intermediaries like GlobalGiving provides DAFs the opportunity to leverage vetting expertise to verify that organizations (both in the U.S. and internationally) are confirmed charitable entities with demonstrable community impact. Furthermore, international donations and grants are subject to additional regulation from the Foreign Corrupt Practices Act (FCPA), UK Bribery Act, and more. There are dozens of watchlists meant to prevent money laundering, terrorism, and corruption, and a review of these becomes even more critical when disbursing funds internationally. For more information about the importance of vetting, see our seven reasons to conduct deeper due diligence before grantmaking.
Learn more about GlobalGiving’s vetting and grantmaking services.
Featured Photo: Help bring Financial Stability to Uganda by Opportunity International.