Growing popularity of donor-advised funds is changing philanthropy
For Marie Stapinski, giving isn’t necessarily tied to the holidays.
Throughout the year, she reviews lists of needs across the Pittsburgh region’s human services, education and arts sectors and meets with community advisers to narrow down her options. With that information, she periodically doles out grants of $1,000 to more than $15,000 to nonprofits whose work she believes in and whose leaders can produce evidence of their impact.
Stapinski doesn’t make spending decisions for a nonprofit or a foundation, nor does she merely cut checks for charity on her own.
She controls a donor-advised fund — the fastest-growing vehicle in U.S. philanthropy.
“It’s sort of like being Santa Claus all year long , ” said Stapinski, 38, of Pittsburgh’s Squirrel Hill neighborhood.
Growing at a billion-dollar pace
A donor-advised fund offers attractive tax perks coupled with a relatively hassle-free giving experience for those with at least $5,000 to $15,000 in extra cash, stocks, real estate or other assets to establish one.
“You can definitely dictate your level of involvement,” said Stapinski, a former interior designer and appellate attorney who now stays home to care for her two children, ages 2 and 4.
Stapinski, a niece of Jack McGinley of the McGinley-Rooney clan that founded the Steelers, began learning about her family’s donor-advised fund at The Pittsburgh Foundation in her early 20s. She became the fund’s primary manager in her early 30s.
Stapinski’s grant recipients in 2018 included the Nine Mile Watershed Association’s youth education program in Penn Hills, Bricolage’s immersive theater production company in Downtown Pittsburgh and Sojourner House’s jobs, housing and support services for single women and families in the city’s Friendship neighborhood.
She wouldn’t disclose the total value of her family’s DAF, but said that in some year she has given three larger grants of $15,000 to $20,000 apiece and in other years 15 small grants of about $1,000 to $3,000 each.
Donor-advised funds, or DAFs, have been available as giving tools for decades, but their popularity in the United States has been growing rapidly over the past several years — up to more than $110 billion in combined assets.
Contributions to DAFs accounted for 10.2 percent of all U.S. individual giving in 2017, up from just 4.8 percent in 2007, according to the latest National Philanthropic Trust data.
“We are in the midst of a transformative era in the history of philanthropy,” said Eileen Heisman, president and CEO of The National Philanthropic Trust, which manages DAF accounts and conducts industry research on giving trends.
“The vast majority of non-cash asset contributions are publicly traded securities, but we also see donors turning their business interests, real estate, fine art and jewelry into charitable capital,” Heisman said.
The number of donor-advised funds surged last year by 60 percent, up to more than 463,000 across several types of sponsor organizations, including community foundations, charities and commercially backed DAF-holding arms of financial giants such as Fidelity, Schwab and Vanguard.
Once established, the funds can be used to disburse grants to IRS-qualified nonprofits as the donor sees fit. The sponsors take care of all required paperwork, regulations and administration in exchange for annual fees of 0.05 to 1 percent. The donors can choose to remain anonymous and the funds can be assigned to unlimited donor successors.
“It’s an instrument that works really well for the donor, said Maxwell King, CEO of The Pittsburgh Foundation, which manages about 1,000 DAFs valued at $330 million — up from about 500 accounts totaling $111 million in 2009.
DAFs now account for nearly 30 percent of all assets managed by the regional foundation.
Anonymity, lax payout rules spur concerns
The spike in popularity and the sheer size of DAFs has caught the attention of critics, including some nonprofit industry observers, watchdog groups and academic experts who question whether there is enough attention being paid to where all the money is going and whether it gets to charitable purposes in a timely manner.
Critics argue because there is no payout requirement, DAFs could be abused by the super wealthy to hoard money and get immediate tax breaks without any guaranteed timeframe for when the money will get spent on public benefits.
“The purpose of providing a tax benefit is not to put the funds under donor control,” said Ray Madoff, law professor and director of the Boston College Law School Forum on Philanthropy and the Public Good. “The purpose of providing a tax benefit is so that they can be deployed for charitable use.”
“The problem with donor-advised funds at their core is that they are funds where the charitable sponsor agrees not to put the funds to active charitable use, but instead to wait for the advice of the donor,” Madoff said.
Proponents and managers of DAFs point out that as the number of DAFs has grown, so have their payouts.
Less than 1 percent of the National Philanthropic Trust’s DAF accounts sit dormant, which means they haven’t made a grant in three years, according to Heisman. The Pittsburgh Foundation says less than 2 percent of its accounts have not been recently active.
“People don’t open these and walk away,” Heisman said.
Leaders of the National Philanthropic Trust and community foundations serving Allegheny and Westmoreland counties that sponsor DAFs have opposed proposals in Congress for mandates such as a 5 percent DAF payout requirement, in line with what’s required of private foundations. Private foundations also must file their own Form 990 tax records with the IRS and disclose detailed information about their spending.
Heisman argues that a payout rule could actually lower the amount of DAF giving annually.
“We’ve been having nearly double-digit growth for the last five or six years, and we’ve been looking at payouts around 20 percent or more,” Heisman said.
Heisman does support, however, legislative discussion of requiring DAF sponsors to publish information on their dormancy data and policies.
Critics further question the lack transparency regarding DAFs amid already underfunded nonprofit oversight, with less than half of 1 percent of qualified nonprofits getting audited annually by the IRS.
How donor-advised funds work
DAFs are attractive to donors because they provide the benefits of greater tax deductions, more flexibility over spending and fewer regulatory costs and hassles than they would’ve faced by forming a private foundation. Cash contributions to DAFs can be deducted immediately up to the maximum allowed by the IRS, and non-cash contributions can shirk the capital gains tax.
Along with sustained growth in the stock market, Heisman attributes much of the recent increase in DAFs to simplified giving technology tools that embrace methods like crowdfunding and workplace giving, including a new Canadian-based technology platform that makes giving to DAFs as easy as the click of a smartphone.
“You can create them within a day, and you can fund it within a day or two,” Heisman said.
Sponsors such as The Pittsburgh Foundation provide fund advisers with free guidance, meeting space and resources from foundation staff and their networks.
The foundation also monitors the financial position, tax-exempt status and program-to-overhead ratios of nonprofit recipients.
“They vet the nonprofits well,” said Stapinski, who said that even with a law background, navigating a private foundation is challenging and time-consuming.
While national DAFs average more than $250,000, the average size at The Pittsburgh Foundation is less than $50,000.
Grants must be at least $200, with some DAFs disbursing more than $1 million a year.
“I have no reason to think that it won’t continue in popularity,” said Yvonne Maher, the foundation’s executive vice president for development and donor services. “This year, we’ve already raised $40 million in new money, and I think that we’ll continue to grow.”
Natasha Lindstrom is a Tribune-Review staff writer. You can contact Natasha at 412-380-8514, email@example.com or via Twitter @NewsNatasha.