Modern Philanthropy: Donor-Advised Funds
Maybe you’ve heard of them: DAFs. They have a funny name, but they’re nothing to LOL about. DAFs aren’t the latest online dating acronym, but rather an increasingly popular way that donors are making an impact with their charitable giving.
Many modern philanthropists are connected, tech-savvy, and socially conscious. They expect the same flexibility in their philanthropic vehicles as they get in other aspects of their lives. Philanthropy itself is evolving, spurred on by technology and an “always on” media landscape. And, more pointedly, today’s donors are looking for fresh ways to give and to have their contributions make a lasting difference. In recent years, donor-advised funds, or DAFs, have exploded in popularity to fill this need. But just what are DAFs, and how might they fit with an investor’s philanthropy goals?
To answer these questions, our editorial team spoke to Karey Dye, Managing Director, Investment Management Division of Goldman Sachs and president of the Goldman Sachs Philanthropy Fund (GSPF), a public charity established to encourage and promote philanthropy.
Dye knows that philanthropic approaches change from one generation to the next. She believes philanthropy is a long game and advises her clients accordingly. “Developing an effective philanthropic strategy takes time,” says Dye. “At Goldman Sachs, we encourage donors to explore a range of philanthropy strategies such as contributing directly to a public charity or establishing their own charitable foundations. DAFs are another tool that often enables more thoughtful, effective giving.”
At Goldman Sachs, we encourage donors to explore a range of philanthropy strategies such as contributing directly to a public charity or establishing their own charitable foundations. DAFs are another tool that often enables more thoughtful, effective giving.-Karey Dye, Goldman Sachs
All You Need to Know About DAFs
DAFs support modern philanthropy
DAFs are a great solution for those looking for results-oriented philanthropy. They’re cost-efficient and give donors time to identify and give to the causes they wish to support.
Annual lump-sum contributions to DAFs simplify personal accounting, and DAFs offer donors access to best-in-class administration and compliance, freeing up time and energy for the donor to focus on impact. Donors can select from a variety of investment strategies; the GSPF offers individually managed accounts (including environmental, social, and governance [ESG] strategies), and active and passively managed strategies. Further, a variety of assets can be transferred into the DAF, including stocks and other securities, not just cash.
DAFs are flexible
For many donors, DAFs are like a charitable checkbook or wallet that can be accessed, even online, 24 hours a day, 7 days a week. For example, GSPF provides donors with a digital interface from which to make grants at any time. Some donors use DAFs for more sophisticated giving, including scholarship funds, endowment funding, matching or challenge grants, milestone or evidence-based giving, international giving, and even program-related investing in charitable projects. DAFs offer donors a variety of options when it comes to giving, from the traditional to the collaborative.
“There are people that are doing classic support such as constructing buildings, donating to specific programs, or contributing to annual funds at different organizations,” says Dye. “Others use them as collective-giving vehicles. In this case, a number of donors will pool capital to support innovative projects, often designating a leader with deep expertise in that area to take charge.”
They often distribute at higher levels than other types of charities
Unlike a personal bank account, DAF funds belong to the sponsoring charity (not the donor) and cannot be withdrawn. Funds may only be granted to IRS-certified charities recommended by the donor. Donors have much flexibility in the amounts that they grant, ranging from a few hundred dollars at a time to millions. While DAFs have no required payouts, in practice, DAF payout rates can be much higher than the minimums required of a private foundation. DAFs comply with state and federal regulations and DAF administrators file a detailed and comprehensive tax return annually with the IRS.
DAFs’ anonymity means a focus on giving
Many donors view anonymous giving as a virtue, a way to give back to communities without drawing attention to themselves and giving the spotlight back to the very causes that need support in the first place. DAFs can offer donors the opportunity to support charitable causes anonymously, or they can offer recognition to the donor if they prefer.
DAFs have the same transparency as other public charities
Donor-advised funds offer the same information on IRS form 990 as other public charities – disclosures around assets, expenses and actual grant recipients are available to the public. There is full transparency over the gifts actually made by the DAFs but the recommending donors are not identified.
DAFs are another effective way to manage assets
Investment managers such as Goldman Sachs are entrusted with managing assets for all types of clients, from foundations and endowments to private individuals and families to DAFs. The focus is on the philanthropic priorities of the client, and there’s no incentive to recommend one form of charitable vehicle over another other than what would best accomplish the client’s goals. Dye stressed this point: “From my experience, donors are often very committed to their chosen causes, wanting to make donations to achieve impact and measurable results with their giving. So while we are vehicle-neutral when it comes to discussing a client’s chosen philanthropy route, DAFs are one effective and successful way to set aside significant resources for charitable giving.”
The short of it
Donor-advised funds are an important component of modern philanthropy. They’re a tax-efficient, flexible, impactful way to give.
DAFs, such as the ones held by GSPF, can be accessed online along with other accounts.
Effective philanthropic strategies take time. DAFs offer donors a flexible way to make a difference with thoughtful, long-term, effective philanthropy.
Funds deposited into a DAF belong to the DAF sponsoring charity; they cannot be withdrawn and must be donated to a certified charity. Compliance with IRS requirements makes DAFs as transparent as other public charities.
DAF donations can offer anonymity to donors, allowing them a way to give while ceding the spotlight to others, or the donors can be acknowledged if that is their preference.
DAFs are just one of many ways to manage charitable assets, and clients should always consider their individual circumstances and goals in their philanthropic planning. Firms such as Goldman Sachs have no incentive to prefer one form of management over another.
This material is intended for educational purposes only and is provided solely on the basis that it will not constitute investment advice and will not form a primary basis for any personal or plan’s investment decisions. While it is based on information believed to be reliable, no warranty is given as to its accuracy or completeness and it should not be relied upon as such. Information and opinions provided herein are as of the date of this material only and are subject to change without notice. Goldman Sachs is not a fiduciary with respect to any person or plan by reason of providing the material herein. Information and opinions expressed by individuals other than Goldman Sachs employees do not necessarily reflect the view of Goldman Sachs. Information and opinions are as of the date of the event and are subject to change without notice.
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