Donor-advised funds are the fastest-growing philanthropic vehicle across the globe. At The Gift Trust, our donor-advised funds (Gift Accounts) allow donors to set aside charitable funds, receive immediate tax and investment advantages, and create impact for the causes they care most about.
As New Zealand’s only national donor-advised fund provider, The Gift Trust is uniquely placed to assist donors.
We decided to look overseas to find out why donor-advised funds are so popular – and how we compare in New Zealand. We spoke to Jasper van Brakel, CEO of RSF Social Finance (RSF) in the United States, and John Canady, CEO of National Philanthropic Trust UK (NPT UK) in the United Kingdom to find out more.
Donor-advised funds have been around in the United States since the 1930s but did not ‘take off’ until the 1990s. American donor-advised funds now hold the equivalent of more than $205 billion NZD.
John (NPT UK) says their first challenge was raising awareness about the existence and benefits of donor-advised funds. “We just want people to be aware of them as a tool and if it’s appropriate for them, they can use them”.
When speaking with John (NPT UK) and Jasper (RSF), it became clear that donor-advised funds are popular for a range of reasons.
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First, they are convenient. Jasper (RSF) notes it is resource intensive and often less attractive for individuals to establish a private foundation unless significant assets are involved. For John (NPT UK), “donor-advised funds allow you to focus on the giving … without having to worry about the administration”.
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Second, as intermediaries, donor-advised fund providers ensure compliance. Donors can be assured of regulatory compliance, especially when foreign grants are involved. They also know that due diligence is taken care of, and that robust policies and processes are in place to ensure that every gift is going to a charitable cause.
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Third, donor-advised funds allow people to be strategic with their giving. Like The Gift Trust, strategic assistance is a core part of RSF’s work. Their multifaceted service includes philanthropic advice and “collaboratives” (pools of philanthropic capital for thematic areas e.g., racial justice). For Jasper, connecting with change-makers is the favourite part of his job.
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Finally, donor-advised funds offer a great tool from a tax and an investment standpoint. Tax deductions can occur straight away when funds are contributed. Investment returns may also be made on the funds to grow that philanthropic asset, and to create more impact.
Donor-advised funds generally provide a more affordable, effective and strategic option for giving to charitable causes.
But donor-advised funds are not right in every situation and there are also some challenging perceptions to overcome. For example, in the United States, private foundations have a 5% minimum pay-out requirement, whereas donor-advised funds do not. Critics say this encourages funds to sit dormant. However based on both our experience at The Gift Trust, as well as RSF’s experience in the States, most donors who have a donor-advised fund actually tend to give more to charitable organisations.
In 2020, 72% of RSF’s funds were granted out to the community. The aggregate grant payout rate from donor-advised funds in the UK is 31%.
The Gift Trust shares the RSF policy to get in touch with donors if funds have been dormant for a while. We are yet to do so, as most donors make charitable distributions each year. In the last financial year, The Gift Trust donated out 20% of the funds we held to charitable causes which is higher than most private foundations.
Donor-advised funds also face challenges in setting expectations and ensuring people know how donor-advised funds work. While donors can make recommendations as to how the money is donated, the donor-advised fund organisation has a fiduciary and protective role over a transfer into charitable causes. We ensure funds are used for charitable purposes through extensive due diligence over every single one of our donations.
So, if you’re thinking about setting up a donor-advised fund or Gift Account, where should you start? First, says John, this is a great place to be – so congratulate yourself!
Next, consider these tips from John (NPT UK) and Jasper (RSF):
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What you fund is almost as important as how you fund. It matters who you work with. Intermediaries like RSF, NPT UK and The Gift Trust are non-profits themselves and not affiliated with any specific financial institution. This means they are embedded in the communities they work with and are well placed to offer oversight and advice.
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Consider your giving strategy. You may be quite clear on who you want to give to, or you could look for a donor-advised fund provider, like The Gift Trust, to help set this pathway. Either way, consider starting small and giving it a go first. Then you can eventually dig a bit deeper with a few organisations.
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Get involved with your community and causes. Whether it’s through volunteering or spending time with an organization to get comfortable, this helps. In John’s words, “You will naturally evolve in what resonates with you and with what impact you want to achieve”.
Giving is a journey. But donor-advised funds provide a good place to start. Get in touch with us at The Gift Trust if you would like to begin that journey.
