Three things wealthy people do to maximize the impact of their giving

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Three Things To Know

Donor Advised Funds are a tool used by the wealthy to maximize the social and financial impact of their giving. GivingFund makes it possible for everyday people to get access to Donor Advised Funds as well.  Consider using one if:

  1. You want to be more strategic and thoughtful about the amount of money you give to charity, and reflective of where it goes

  2. You want to use tax deductions to your advantage and potentially develop a multi-year tax strategy

  3. You want to be able to invest your philanthropic money in impact investments before you give it away


Let’s Get To It:

The difference between wealthy people and everyday people isn’t just in how they spend their money, or even how they invest their money. It’s also in how they give it away.  Donor Advised Funds (DAFs) are a philanthropic tool that up until now, has only been widely used by 1%’ers. But that doesn’t have to be the case. Tech companies are helping democratize financial tools - GivingFund is doing just that for Donor Advised Funds (DAFs), a philanthropic investment vehicle that helps you be smarter with your impact and smarter with your money.

Never heard of a DAF? It’s not because they’re small. DAFs account for about $23 billion dollars in Assets Under Management in the US (that’s about the GDP of Iceland).  It’s because they’re typically only marketed to the very wealthy and the 50+ age demographic - despite the fact that they’re a tool almost anyone can benefit from, including younger, millennial clients who care about effective giving.. Donor Advised Funds help wealthy people be more strategic with their giving, more thoughtful with their tax savings, and more intelligent with their investment options.

So What IS a Donor Advised Fund?

A Donor Advised Fund is a philanthropic investment fund - investments can be made into any type of product, but the principal and any gains must all eventually be paid out to a charity. Donor Advised Funds work similarly to a health savings account - you put money into the account and it becomes tax deductible, and earmarked for a special purpose - instead of health spending, in this case, philanthropy. The money rolls over year-to-year if you don’t donate it that year, so you can save up for a big donation down the line.

As an added benefit, you can invest the money in your Donor Advised Fund, so that it actually grows - tax free - over time. All the gains from investments get recycled back into the fund, so you actually get to give away more money.

Why haven’t more people been using Donor Advised Funds?

For starters, the minimums can be a pretty high for the average donor - funds start anywhere from $5,000-15,000. That’s mostly because these Funds were built as ways to serve the Bank’s already existing high-net-worth-individual customers. Most of these individuals were giving money away anyway, so Donor Advised Funds became a way that banks could start to manage that portion of their financial health as well. In fact, Fidelity has almost $5.4 billion dollars in Assets Under Management through its DAFs.  That’s bigger than the Rockefeller Foundation and it’s over 5 times the size of St. Jude’s Research Hospital. So what do all these wealthy people get out of stashing their philanthropic cash with Fidelity, Charles Schwab, and Goldman Sachs?

There are three things that wealthy people do with their money, through a Donor Advised Fund, that you could be doing too.

1. Wealthy People Budget For Philanthropy and Plan:

With a DAF, all your gifts come from one centralized pot of money, that you pre-budget, based on your yearly goals, or based on same future gift you’re saving up for. For high-net-worth individuals that make large-scale gifts, it’s helpful to have a professional manage the execution of that gift, and work with nonprofits ahead of time to plan those gifts out.

For more modest givers, you may not need the hand-holding for your $10 donation, but having a central platforms where you can see just how many gifts you’ve made and to where, could be just as valuable. Think of it like money diaries, but with a soul. For example, you can budget 5% of your salary into your fund, and track the speed at which you spend it down, and to what type of charities.


2. Wealthy people think about their tax strategy:

Because you can make an up-front gift into a Donor Advised Fund, and spend it down overtime, you can use the timing of your write-offs to your advantage. Wealthy folks do this to avoid being taxed on outlandish gains - like when they sell a huge stock position, or liquidate a real estate asset.

More modest givers can still use this to their advantage. The new tax code raised the minimum needed to itemized deductions - if you’re struggling to meet that minimum, you can front-load your gifts into a Donor Advised Fund this year, and then donate that money overtime.  

3. Wealthy folks take advantage of investment opportunities to grow their philanthropic assets:

Donor Advised Funds allows you to grow your philanthropic capital tax-free while you wait to decide where you want to give it away. High-Net-Worth Individuals may see this as an opportunity to grow their philanthropic assets just the same way they would their other assets.

The same holds true with everyday investors, but with an even bigger potential for upside. Because of the pooling mechanism on the back-end of Donor Advised Funds, smaller scale donors can invest alongside others, to access investment products that they otherwise wouldn’t have had access to. This includes impact investment vehicles that typically have higher minimums that most retail investors can afford!

Investing opens up new impact strategies: you can invest in the short term, to grow your philanthropic assets throughout the year so they can more quickly reach your giving goals, use an endowment model and give away just the investment interest each year, or use a strategy in the middle, saving up for a big gift over time.


Summary

Donor Advised Funds are not just a tool for the uber-wealthy - despite how they’ve been marketed to date. Consider using one if:

  1. You want to be more strategic and thoughtful about the amount of money you give to charity, and reflective of where it goes

  2. You want to use tax deductions to your advantage and potentially develop a multi-year tax strategy

  3. You want to be able to invest your philanthropic money in impact investments before you give it away

Interested in using a Donor Advised Fund? Sign up to join the waiting list to use our Donor Advised Fund product and we’ll add you to our community.