Jon J. Skillman, president of Fidelity Charitable Gift Fund, recently talked with Philanthropy about the role of donor-advised funds in today’s philanthropic landscape. Skillman has worked with Fidelity in a number of capacities since 1994. He became president of the Gift Fund in January 2003.
How large is the donor-advised fund market?
O f the $240 billion that Amer icans contribute to charity, only about 1 percent, or $2.4 billion, was donated to donor-advised funds last year. But the concept has come a long way in just over a decade. In 1992, the Gift Fund had 160 donors; by 1999 that number had grown to 9,000. Today, we have over 34,000 donors. Since its launch in 1992, the Gift Fund granted in excess of $4.7 billion to some 86,000 nonprofit organizations. In fact, last summer we celebrated our millionth grant.
What are some of the more creative ways donors have used these funds to meet their giving objectives?
The funds are often used to maintain a donor’s anonymity. But there are many other reasons to use them.
The funds give donors the ability to name successors to their accounts and to easily change those successors over time.
People often increase their charitable giving when they have a high-income year, sell a company, or gain an inheritance. By giving those assets to a fund, you gain a current tax deduction and also get to decide what kind of grant recommendation you want to make in the future.
Non-liquid assets, such as real estate, are easier to handle through donor-advised funds. A vacation home in Florida, for example, cannot be practically divided into ten separate pieces. (A Caveat: Under our policies, we only accept illiquid assets that we can sell promptly at fair-market value to unrelated parties.)
A number of people who have launched private foundations now realize that these are not the easiest things to administer. Consequently, a growing number of donors are collapsing their private foundations into a donor-advised fund. While the donor gives up legal control and some flexibility, the switch allows donors whose only interest is in recommending grants to public charities to concentrate on their philanthropy without administrative worries.
What’s the average life-span of a donor-advised account?
It’s difficult to speak of an average life-span because the Gift Fund has only been around 12 years. Generally speaking, however, after about six years the amount of grants paid out of an account begin to exceed annual contributions in plus earnings. So there is an aging pattern to donor-advised fund accounts.
What happens to donor-advised accounts in which the donor dies without naming a successor or designating how the funds are to be spent?
Those dollars get transferred into a fund overseen by the Charitable Gift Fund’s trustees, who use the money to make grants. Since the beginning of the Gift Fund, the trustees have made about $5 million in grants to some 60 charitable organizations. Currently, the trustee’s trust fund has about $17 million in it.
Does the Gift Fund subject grants to due diligence?
Yes. In all cases, we verify that the recipient organization is a charity in good standing with the IRS. We have other internal controls that trigger additional investigations of particular recommendations, such as the amount of the recommended contribution, or whether the charity shows up on other “watch lists.” We require both the donor and the charity to acknowledge that neither they nor anyone related to them will receive any benefit from the recommended charitable organization for a grant. We also monitor press reports to learn which charities are under investigation or have recently been accused of fraud. The press reacts to these stories more quickly than the IRS can. We will not make grants if there are issues in those situations.
How has the Gift Fund responded to the congressional proposals aimed at reforming the nonprofit sector?
We’ve not made a formal response. In 2002, however, we worked with our counterparts at Vanguard and Schwab to develop common operating procedures—best practices, as it were—for running national donor-advised funds. Many of the preliminary ideas that were put into the Senate Finance Committee paper addressed issues which we addressed at that time. For example, the Senate Finance Committee wants to establish a 5 percent minimum payout requirement for donor-advised funds. The Gift Fund’s aggregated payouts are generally more than 5 percent, and last year the Gift Fund paid out 27 percent of its assets on an aggregated basis.
Generally speaking, while I don’t think anyone in our sector is interested in a lot more government regulation, we are supportive of efforts to curb abuses in the charitable arena.
Have you noticed a correlation over the years between market performance and donor-advised fund performance?
I think there’s a correlation. In 2000—the peak year in terms of new dollars coming into the Charitable Gift Fund—the market was reaching corresponding heights. We then had three successive years which collectively were the worst bear market since the 1930s, and our contributions fell as well.
Granting fell also, but by a lesser amount. It was heartening to see that our donors continued to support the charities that were important to them, even at a time when they perhaps had less money to contribute.
How healthy is American giving?
If the Gift Fund is a barometer of American giving, then the country’s in good shape. In 2004, we brought in $870 million in new contributions, a 33 percent increase over the last year. Payouts are also up. As of December 31, 2004, the Gift Fund has dispensed $697 million, a 7 percent increase over the same period of time last year.
We believe the increases have something to do with the rise in the equity markets, as well as the fact that donors are perhaps feeling a little more secure than they were a year ago. One way we measure donor confidence is tracking the percentage of new contributions that come to us in the form of securities. This year, 68 percent of our contributions were in the form of securities; that compares to 63 percent last year and 53 percent the year before. In 2000, when the bull market was at its peak, 79 percent of new contributions were securities. This is good news for charities around the country.