Dani Robbins

The Implications of Donor Advised Funds on the Charity You Love

In Community Strategy, Leadership, Non Profit Boards, Organizational Development, Uncategorized on February 6, 2019 at 10:09 pm

Donor Advised Funds (DAFs) were created to be a charitable option for those who have or have received a significant influx of funds. They are touted as a way to democratize philanthropy. DAFs have opened up vehicles for giving to midsize donors in a way that family foundations could not. For the first time, donors with sometimes four but more often five-figure gifts to donate could do so, long term.  Of course, they could always do so short term. 

Despite the DAF commercials you may have seen (Wells Fargo wins for the most appalling), it was always possible to donate a significant gift straight to the nonprofit of your choosing.  What wasn’t available was a long-term option, other than a family foundation, which is expensive to start and has significant compliance obligations.

The introduction of DAFs allow a donor to get an immediate tax deduction, while they – in theory – can research where they want to spend their philanthropic dollars, later.

To be clear, it’s called Donor ADVISED Funds for a reason.  The donor can advise the DAF sponsor on where they want the gift to go.  The DAF sponsor usually sends it to the intended destination but reserves the right not to based on the law, the mission of the recipient organization and the sponsor’s internal policies. For example, your local Jewish Foundation will likely grant your recommendation to send a gift to your local Jewish Community Center, but not likely to your local hate group. 

There are a few requirements of the donor.  DAF funds cannot be used to pay a pledge.  In fact, the donor can‘t receive any benefit from the gift – this is standard for any gift you want to deduct. It’s why you can’t deduct the full cost of the gala you went to last weekend but can deduct the cost of the ticket minus the expenses to the charity.  In the case of DAFs, you can’t buy the ticket with those funds at all, since you received a benefit (gala tickets) for your gift.

DAFs can be named for your family, or whatever or whomever you’d like.  You can name it your initials, or for your dog. That makes it difficult for charities to prospect, thank or steward gifts received from those who have DAFs, or even to know from whom their most recent donation arrived. 

Another challenge for our field is that there’s no requirement that money be given out. There’s also no requirement that the name of the donor be released. In fact, there are rules against their names being released. You read that right: a donor can park significant resources in a donor advised fund, which is then owned by the DAF sponsor, to be given out without attribution to the donor, at the donor’s leisure or not at all.  In all cases, the donor gets an immediate tax benefit.

Actual charities may get nothing. The government definitely gets nothing because it goes in and continues to grow tax free. No taxes get paid. The data  suggests that donor-advised funds have a net negative effect.

The only ones who consistently benefit is the donor and the fund owner, which may not actually be a charity at all, and likely will be a for profit company managing a “nonprofit spin off.”  Here’s the Chronicle’s explanation “Much of the criticism is directed at Fidelity Charitable and other sponsors of donor-advised funds that are nonprofit spinoffs of financial-service firms. These organizations typically pay their for-profit parent to manage the money in the funds, which means they have a financial incentive to accumulate assets and hold onto them.”

How it works is this: A donor sets up a donor advised fund, either at a community foundation, or at a for-profit company that manages “a charitable institution.” The word charity is used in the loosest way, meaning under the law it’s a charity, but in reality it provides no services other than as a vehicle to house funds which will be given out at a later date, maybe. It will generate annual fees for the sponsoring institution, often but not exclusively a for profit entity, in perpetuity.

That’s part of the challenge for the nonprofit field, and the government. DAFs take huge amounts of money out of the economy, and out of the charity designation pot each year that actual charities providing real services may never see. Unlike foundations, there’s no distribution rules. Even the DAFs housed in foundations have no distribution requirement.

In other words, you could sell a business for $100 million today and put some portion of that money in a donor advised fund.  You would get an immediate tax deduction and the donation could sit there … in perpetuity.

Those who are fans of Donor Advised Funds will argue that money is given out.  They say that even more money is given out because of DAFs.  But because most of the giving, the “owning” and the management of donor advised funds is done in secrecy, we don’t really know.

A smaller challenge is that many agencies don’t know how to properly thank donors who send gifts from donor-advised funds.  Because they may not understand that the gift came from a DAF, meaning the deduction has already been granted, they may send a letter with tax deductible language. The donor may not notice when the letter comes in but totally notices when they’re trying to figure out their taxes at the end of the year.

To be clear, there is a fairly significant section of nonprofit leaders who like Donor Advised Funds and many leaders do not care from whom the money comes or by what vehicle it arrives, as long as it comes.  Some will say, and they will be right, that if you know your donors, you know who has a DAF and this is not a problem.  Is that true? Sometimes. 

It’s critical nonprofits know from whom they’re receiving gifts.  There are too many instance of charities taking money from people or companies who later embarrassed them, or publicly compromised their principles or values. If you don’t know, you can’t protect your organization.

Still, some leaders love DAFs.  Of course, leaders of community foundations love them.  Community Foundations are a huge holder of DAFs.  I appreciate that and if you insist on starting one, please consider the community foundation in your area. 

There are even some charities who have started managing DAFs themselves.  Many of the big nonprofits have started their own, often aligned with their organizational values and with a requirement that a portion of the funds go to them. Still, the charities and the community foundations don’t come close to the big companies.

As far as charitable recipients, Fidelity Charitable is at the top, coming in at #1 for the second year running and in the second spot for the five preceding years of charitable data. DAFs are so significantly represented that a full 50% of the top 10 recipients of charitable funds in 2017 are sponsors of funds and not community serving, program providing, (actual) charities.  One is a community foundation. 

The DAF debate is happening at the same time that the field and the world is beginning to challenge status quo of philanthropy. 

The following questions are currently being discussed:

When does being donor focused come at the expense of the mission, clients or community?

Should deductions be tied to community need?

Does the current model of philanthropy promote inequity?

How do nonprofits distinguish themselves in a world of social enterprise?

Does big philanthropy reinforce the inequity it purports to address?

What’s your take on DAFS? Are you asking, and how do you answer the questions listed?  I welcome your feedback, insight and experience.  A rising tide raises all boats.

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What Can You and Your Nonprofit Do in These Uncertain Times?

In Advocacy, Leadership on August 16, 2018 at 8:04 am

I have been watching and worrying, wringing my hands, furiously reading and posting articles, vacillating between being terrified and sick to my stomach, and occasionally screaming about the current status of our country’s leadership and the crash course we seem to be on toward becoming all of our worst fears. As that is only so productive for so long, I am electing to make a list of things I can do, and our field can do, to affect change. I invite you to join me.

Give

I can give to a cause I believe is working for justice. I am already a member of the ACLU and both of my local NPR stations (why we have two is a post for another time, and another blogger) After reading How to Make Fun of Nazis about a town in Germany in which people pledge to donate to social justice for every step made by neo-Nazis, I made a donation to one of my favorite charities.  After the Kavenaugh hearings, I sent money to a rape crisis center. Today, the morning after the Tree Of Life massacre, I sent money to the Democratic house candidate in my district.

Nonprofits, you can promote your work addressing these issues.  You can engage donors to rally around you. You can engage people to fight hatred in all forms. You can protect your clients, members and community. You can solicit donations to execute (the non candidate related suggestions) listed below, assuming they are aligned with your mission and in concert with your programming and your Board. If not, I encourage you to support your partner agencies in doing so.

Call

I can call my elected officials.  I (personally) have called Senator Portman’s office so often, I’m on a first name basis with some of the staff. (Hi Eric and Kevin!) If you’re going to call, be clear on what you want. Is it that a vote should be put off, or an FBI investigation be requested? Is it to vote no? Is it impeachment?  Is it that protestors should not be allowed to carry guns? Is it to enhance prayer with action and legislation? Is it to protect and defend minority groups? Statements are nice but legislative or judicial action is the only way we’re going to ensure our values are upheld. While it’s true that our personal values aren’t all the same, our country’s values are pretty clear; even as we haven’t always or often lived up the them. This is one more opportunity to be who we wish we were.

Nonprofits, if you’re not already doing so, you can send out posts informing people how to engage elected officials. If you want to encourage a specific view point or recommend a letter be used, depending on the topic, you may have to follow different rules based on your IRS status.  If you’re unsure, check your status before you do.  The rules are different for 501 c 3s and a 501 c 4s.  Both can lobby, but 3s can only do so to a point and cannot support candidates. I also recommend you check with your Board before you set down this path.

Join

I can join together with like-minded partners.  I can join a current group; there are many.  Or I can start my own.  One person is just that. Three is a group. Ten is a coalition. 100 is movement. We can stand together to fight hatred and promote peace.

Nonprofits, we are all stronger together. If there’s a collation you can build or join with your partner agencies to promote an agenda of peace, I encourage you to consider it.  Ten agencies standing together to promote their city as a sanctuary city sends a strong message.  Ten agencies partnering to train people to protect their neighbors does as well.  Again, bring your Board along with you.

Protest

I can, live and in person, go to a protest and put my life and my body on the line to stand up for my beliefs.  It is my right and my choice. Yours, too. The only way to be heard sometimes is to also be seen.

Nonprofits, many of our strongest and oldest agencies were birthed in protest.  You can bus people to marches. You can train them on the law and their rights. You can ensure your clients have a political voice and know how to use it. You can also take out an ad in the local paper, write an op-ed piece or post a letter on your website.

Speak Up and Speak Out

Speak out not only to the elected officials or on your computer, but to your family, friends, and neighbors when they say something disrespectful, racist, sexist, homophobic, anti-Semitic or anti-Muslim or just plain stupid, wrong or ignorant. Silence is acquiescence. There are no sidelines and, no (!) both sides do not have equal validity. There’s right and there’s wrong.  Where do you stand?

Nonprofits, you can train people on how to do this.  It’s hard and sometimes it’s dangerous. You can give people tools.

Vote, Support a Candidate or Run for Office

I can vote, as I have done and will continue to do. I can support, financially and with my time, candidates that I believe in.  I can also run for office. So can you.

Nonprofits can and are training people on how to run, register to vote and support others.  We can encourage them. We can support them. We can teach them how to raise money, file the paperwork and campaign.  Many of you are already doing it.  The rest of us can promote your work.

Heal

We have never healed the wounds of our history. We have never reconciled the hell of slavery.  The history of women as chattel. The cost Native Americans paid. The scars of internment. The vestiges of WWII on its survivors and the families of those who weren’t as lucky. Our past is haunting us. We have some hard questions to face and some difficult conversation to have. Let’s have them. Let’s talk.

If all we have are words and war, I’d prefer words.

Nonprofits, we are already poised to hold these conversations.  We can set ground rules, start the dialogue and begin the healing process.

What I can’t do, you can’t do and we can’t do is nothing.  Our silence will not protect us.

What more can I do?  What have you done?  What else can our field do? I welcome your insight, your answers and your comments, with the understanding that hate will (still) not be perpetuated here.

What is Your Organization’s Theory of Change? What is the Path to Your Goal?

In Community Strategy, Leadership, Organizational Development, Strategic Plans on July 21, 2018 at 8:04 am

I have had multiple conversations over the last couple of weeks about how to get there from here. Of course, that all depends on where you want to go AND on how you want to get there. The path matters and you need both. Similar to getting anywhere, there are multiple paths. Say you wanted to go to Chicago – you could fly, drive, bike, walk or take the train. What’s the best way forward, for you, your community, program or organization?

In the nonprofit world, your theory of change is the path to your goal. What is the desired goal? What path will get you to it? Strategy is the selected theory of change; it’s the high-level plan to meet a goal. Anne E Casey defines it in their manual, which if you haven’t read I highly recommend: “A theory of change (TOC) outlines how to create that change. It is an essential part of a successful community transformation effort. This manual, created for the Casey Foundation’s Making Connections initiative, defines theory of change using Casey’s impact, influence and leverage platform, and shows community advocates how to create their own TOC by showing the relationships between outcomes, assumptions, strategies and results.”

It’s useful at the community level and also at the organizational or even program level. It really comes down to this: What’s the goal? What strategy will you use to get there? How will you know when you do?

What if you wanted to address high school dropout rates?

You could work at the program level: You could talk to kids who graduated and find out what made them successful. You could talk to kids who dropped out and found out why they dropped out. You could shore up, revise, introduce or improve supportive programs in kindergarten, 3rd grade, 6th. and 8th. You could look at early education programs and their impact on HS success.  You could research wrap- around programs.

You could work at the community level:  You could gather school principals and district executives, youth development leaders, funders, and government officials together and agree to coordinate efforts. You could set a community theory of change, sub goals to get there, and team leaders over the sub-goals to make sure you do.  Each group can coordinate their efforts toward the goal and the funders can align grants to provide incentive.

You could work at the policy level:  You could revise academic curricula to ensure every kid is engaged.  You could address suspension rates. You could address discipline, both the way its meted out and by whom.

You could also work to change the law. We allow students to drop out at 16. We don’t have to do that. Sure, it will create a whole host of other issues if we do, but we can – we have power and choices.

The theory of change model is useful for improving process too.

This morning I was on a coaching call – shout out to you, Ken – and we were talking about increasing individual giving. What can you do you increase individual giving? You could ask (or ask more) people for money. You could assess your current practices.  You could steward your current donors better. You could look for new donors. You could move up the lower level donors you have into middle donors. You could engage the middle donors you have into larger donors. You could prospect for more donors. You could say thank you more or engage people better.  You could engage your Board and your team to create a culture of philanthropy.

Each option is a strategy to get to the goal. What’s the goal? How are you going to get there?

In the nonprofit world, the theory of change is usually implemented via a strategic plan, but it doesn’t have to be.  What is does have to be is agreed to by whomever will be working to move it forward, with sub-goals, strategies for each, metrics so you know you get there, assignments and due dates.  Strategy that can’t be assessed is a wish and as the Heath brothers so eloquently put it “hope is not a strategy.”

Where do you start?  You start wherever you are. Get all the people together who are working towards or are impacted by the issue (yes those impacted too- don’t do for people without people), start mapping, talking, wishing and planning. Social Justice is the concerted effort of a group of people to affect change.

You can spend your days putting out fires. You can spend your days addressing the end result of injustice or you can gather your fellow activists, funders, donors, leaders and fight for justice.

What social justice issue are you trying to address and at what level? Have you had the opportunity to set a strategy to reach a goal? What’s your experience setting theories of change?  As always, I welcome your insight, feedback and experience. Please share your ideas or suggestions for blog topics and consider hitting the follow button to enter your email. A rising tide raises all boats.

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