How to Rethink Philanthropy and Take Advantage of Donor-Advised Funds
/As we emerge from the COVID-19 pandemic, you might be rethinking your own purpose in life, the job situation, or how you spend your time, talent, and resources. I’ve had several conversations with Charisse Says members who tell me that they’re thinking differently about how they allocate their resources, including their charitable giving.
If you are re-evaluating the job situation, check out this recent post by Charisse Says member Michel Fabode, who recently wrote on the importance of belonging at work. Michel uses a powerful framework for creating a culture of belonging, and ultimately inclusion, and draws inspiration from Lin-Manuel Miranda’s new film, In the Heights. My key takeaway from the article is that life is too short to stay in work environments where leaders do not foster a culture of belonging!
If you’re re-thinking your financial resources, you may be considering where you may want to donate your dollars. And, if you’re like me, you’re also hawkishly following how the ultra rich are moving their money in the midst of a crisis. As one Inside Philanthropy article put it frankly, “Let’s be honest: For some wealthy donors, philanthropy is a tax avoidance strategy with the benefit of being an extension of personal power and privilege with numerous public relations benefits.”
Wherever along the spectrum you fall, I think it’s important for you to know about a new bill in Congress that may change the giving rules for certain tax-advantaged vehicles in the U.S. Specifically, two U.S. senators — Chuck Grassley, a Republican from Iowa, and Angus King, an independent from Maine — have introduced a bill aimed at helping charities that provide “critically-needed resources” domestically and abroad to receive philanthropic funds faster by imposing deadlines on how long funders can keep money in donor-advised funds, or DAFs. You should also know that over $140 billion sits in DAFs as of the end of 2019, according to the National Philanthropic Trust.
I talked about donor-advised funds (DAFs) very briefly a few years ago, and it’s worth it to revisit these very philanthropically friendly vehicles. As a reminder, a DAF allows you to donate directly to a charitable fund, but retain control over the assets. DAF administrators are public charities that qualify as section 501(c)(3) organizations. That means donors can benefit from an immediate tax deduction when they contribute cash or other assets to the fund. Think of DAFs as accounts where individuals can warehouse their charitable contributions. Most DAF money sits in financial firms like Fidelity Charitable or Schwab Charitable, but other assets also sit in community foundations or single charities. I think the biggest benefit of using DAFs is the tax benefit. On the flipside, all of the administrative fees you pay to have someone administer the DAF come out of the amount donated, making DAFs often less cost-efficient than donating directly to a charity in terms of fees. Most people believe the tax benefit outweighs the expense you incur due to fees.
I live in Chicago and I checked out my local community foundation’s marketing materials on DAFs, and here’s a powerful example of how it works:
Source: The Chicago Community Trust
So, you may be asking, what are the tangible action steps you can take. Well, I want you to do the following:
If you have (or think of starting) a wealth circle, ask your members whether or not they have put money into a DAF or ever considered doing so. Ask each other why or why not.
Check out your local community foundation to see what your options might be to contribute to a DAF, and hear directly from a consultant (which is usually free if you’re going to put money there) on what charitable options might be available to you.
Ask your financial advisor about their views on DAFs and how to think about them in context with your overall financial planning desires and goals.
Whatever you do, keep in mind that charitable giving is an important tool to spur forward the good work around the globe and in your local community, regardless of what structure you use to give. What I do want for you, however, is knowledge: Be smart about how you give your precious money to others and explore structures that give YOU the benefits that will work for YOUR goals.
A Wealthy Girl Corner
I recently had the opportunity to invite and spend time with my mom and grandma Shine to talk about A Wealthy Girl during a Zoom call for a private company talk. It was truly a wealthy moment not only for me, but all of the guests. My grandma said, “I keep striving every day,” while my mom shared about how she created “opportunities for excellence in our household.”
If you’ve read the book, you know that I share plenty of stories about my mom’s and grandmother’s journeys. These two women are essential to my own wealth creation story. So, I ask you - are you sharing your wealthy moments with the important people in your life? If you don’t know how, need a reminder, or want the people around you to do so as well, make sure you read the last chapter in A Wealthy Girl, which is all about enjoying your wealth.
