Donor Advised Funds: NOT One Size Fits All, By Josie Heath
I read with concern this morning an editorial by Ray D. Madoff entitled “Tax Write-Off Now, Charity Later,” which appeared in the New York Times. Mr. Madoff makes some compelling arguments about the pitfalls of unregulated donor advised funds, offered by commercial brokerage houses. His primary criticism is that there is no payout obligation, which allows money to languish in such funds. But Mr. Madoff omits an important piece of the charitable landscape when he lumps all donor-advised funds into this category, namely the funds that are held by local community foundations.
As a member of a community that depends, as most do, on charitable dollars for essential safety net services as well as arts, environmental work, and youth enrichment opportunities, I support the idea of less money being parked in commercial gift funds. Mr. Madoff correctly points out that more Americans are looking to the charitable sector to meet their needs; in our community, a recent survey indicated that 66 percent of respondents report that demand and client numbers are up. He also appropriately puts on the table the inherent conflict between for-profit institutions earning fees on invested assets and the counter-incentive that thus exists for those businesses to encourage assets going out the door as grants.
What Mr. Madoff fails to do – as do the IRS and Congress – is to distinguish between donor advised funds offered by commercial gift funds and those offered through local community foundations. Like the offerings from commercial banks, community foundations allow donors to earn an immediate tax-deduction for a gift and then to spend it over weeks, months or years. Like commercial banks, community foundations charge fees for holding those funds, which are earmarked for distribution to charitable community groups over time. In the case of community foundations, however, those fees are not part of a for-profit operation, but rather support a charitable organization in its own right that plays an important role in its community.
Community Foundations – and there are more than 700 around the country – are of their communities. In addition to holding funds for donors, most community foundations are also active local grant makers, catalysts and relationship builders. Many work to encourage philanthropy, to fund important initiatives, to educate local donors about important issues and community concerns. Many act as consultants in the nonprofit world, helping with mergers, teaching fundraising expertise and building infrastructure for more stable community organizations, which are then better able to respond to local needs.
Community Foundations also see themselves as a savings account for the community. When the economy is unstable and people have less to give from their income, community foundations become an important standing resource for charitable groups.
As the President of The Community Foundation Serving Boulder County, I have no apologies to offer for our track record for the past 20 years. We encourage our donors to support the community. We educate them and do research and teach their children about local needs and responses. Through unrestricted funds and, to a much larger degree, donor-advised funds, we have given away $43 million in 20 years, compared to $35 million in assets we currently hold. We are working to address local issues here, such as narrowing our schools’ gap in achievement and developing opportunities for leadership from communities of color. We offer personalized and seminar-based assistance to nonprofits in crisis, in trouble or in growth mode. We call every holder of a donor-advised fund each year to remind them that they have assets which could be working in the community now. We are working to build future generations of philanthropists, through working with youth and young entrepreneurs.
The tipping point for me to set aside my work today to have a voice in response to Mr. Madoff’s came from a donor and holder of a donor-advised fund, who emailed me after being “disturbed” by this morning’s article. She wrote: “I think housing a donor advised fund at a local community foundation, with all the resources they offer, helps donors pay attention to how much need there is just beyond our own front doors… If we don’t look behind the curtain of privilege that protects us in our own communities, particularly a community as segregated and privileged as Boulder, then I believe we miss an important opportunity to grow as donors.”
The good work we are doing is similar to many other community foundations around the country, which is why it is inaccurate to lump all donor-advised funds into the same pile.
Josie Heath is the President of The Community Foundation Serving Boulder County.
