In 2023, following passage of the Donor Intent Protection Act in Kansas, Philanthropy Roundtable launched a monthly series on donor intent developments and controversies nationwide to better inform you about this important topic. The Donor Intent Protection Act has now passed in Kentucky, Georgia and Montana as well, and efforts on behalf of this legislation will continue in additional states in 2025 and 2026.
We encourage donors to contact us with any questions about our featured items and consult additional resources on donor intent at the Roundtable’s Donor Intent Hub. We also welcome any news about donor intent we may have missed.
This month’s Donor Intent Watch opens with a brief follow-up report on the ongoing effort by several lawmakers and donors to pass legislation protecting donor intent in Ohio. We close with the third in a series on the importance of choosing the right vehicle(s) for your giving. In this installment, we share the pros and cons of using donor-advised funds.
Another rejection of donor intent legislation in Ohio
Cleveland.com reported on June 24 that for the fourth time in recent years, Ohio legislators have rejected proposed legislation allowing donors to sue colleges and universities when endowment gifts are not used as intended. Jeffrey Moritz, whose testimony supporting such legislation we published last month, has been advocating such legislation for seven years on behalf of his late father, Michael Moritz, who made a $30 million endowment gift to Ohio State University in 2001.
The Ohio Senate had added the proposed legislation as an amendment in the state’s two-year budget, but it was removed before the budget bill was passed out of the chamber. As noted by Cleveland.com, “This is an issue that would be well-suited for a standalone bill,” said John Fortney, a spokesman for the Ohio Senate Republicans, when asked why the amendment was removed.”
Why use donor-advised funds as a giving vehicle?
If you want to protect your charitable intent in the simplest way possible, you would be wise to consider using donor-advised funds (DAFs) as a primary or supplemental giving vehicle. These funds originated within community foundations as a way for donors to create individual philanthropic accounts used to recommend grants to nonprofit organizations. Today, DAFs have become a wildly popular choice. In its 2024 DAF report, the National Philanthropic Trust reported that in 2023, 1,782,281 individual DAF accounts held assets totaling just over $251.52 billion. During that year, donors used these funds to recommend $54.77 billion in grants to qualified charities, 48% of the value of grants and qualifying expenses from private foundations.
DAFs continue to grow at a much faster rate than private foundations because they offer donors flexibility, simplicity, cost savings and anonymity.
“Think of a donor-advised fund as your own private foundation,” said DonorsTrust president Lawson Bader. “You just don’t have to deal with the administrative side of things. It’s cheaper than a foundation, and you don’t have to solicit proposals.”
Donors can take a tax deduction for their contribution in the year they make the deposit into their DAF. Gifts of cash are tax-deductible up to 60% of adjusted gross income. Many DAF sponsors that host your fund will also accept gifts such as securities, art, land and business assets deductible at 30% of adjusted gross income.
DAFs are subject to neither the excise tax nor the annual payout mandate imposed on private foundations. And contrary to some critiques, recent Roundtable research found that generally, DAFs have high payout rates, collectively averaging about 20% a year—close to four times the payout rate of a typical foundation.
The cost of maintaining a donor-advised fund is considerably lower than the cost of operating and administering a private foundation, since the administrative burden of processing applications, philanthropic planning and tax, legal and accounting services is carried out by the sponsoring organization. Sponsors charge DAF holders an annual fee for these services, typically ranging from .5 to 1.5% of assets held in the fund.
Donor privacy is an especially important benefit of donor-advised funds. Although the sponsoring organization is required by law to disclose its grants, that disclosure does not include the name of the DAF account from which the gift originated. As the account holder, you can choose whether your fund’s name and your contact information are disclosed to the receiving charity.
This is a critical factor for individuals who do not want to be inundated with solicitations or who simply want to keep their charitable giving confidential. This distinguishes DAFs from private foundations, which must list their grants in their annual tax filings. Some donors utilize both foundations and DAFs in their giving strategies. They can use DAFs to give family members latitude to make their own gifts, provide younger family members with a low-risk method of philanthropic “training” or protect their privacy completely.
You may open a donor-advised fund through the sponsoring organization of your choice. If your goal is broad philanthropic giving, your best choice might be a national fund (Fidelity, Schwab, Vanguard, National Philanthropic Trust, etc.) that offers the leeway to support most tax-exempt charities regardless of geography and ideology.
If you have a specific geography in mind for giving, a better choice may be the community foundation that focuses on that area, and can provide the knowledge and experience of staff and fellow donors. This is especially important if you do not reside in the region your DAF supports and you will still be able to make gifts outside that region. You can open a DAF at most national funds and community foundations with a modest contribution.
Some universities also offer alumni and friends the opportunity to open a donor-advised fund that will be managed within the school’s endowment. These sponsors, however, will typically impose a high minimum amount for your initial gift and for distributions, and will also require that some percentage of the fund goes to the university.
Yale University, for example, requires a minimum initial gift of $5 million, distributions of $50,000 or more and the designation of at least 50% of the gifts donated to the fund and any appreciation or income attributed to those amounts for purposes at Yale.
Protecting your donor intent with a donor-advised fund requires you be mindful of the policies of the sponsoring organization. Because contributions to DAFs are irrevocable, it is critical to understand the sponsoring organization is the legal owner of the funds in your account, and you merely “advise” on their use.
Donor recommendations are typically accepted, but there have been exceptions. Sponsoring organizations have the option to reject donor recommendations to certain organizations, and some have responded to pressure from left-wing activists to shun subjectively labeled “hate groups” or other charities for ideological reasons. You should inquire about this practice in choosing a sponsoring organization for your DAF account.
If your philanthropy is oriented around a specific set of values—religious, philosophical or ideological—you may find a mission-driven intermediary is the better sponsoring organization for your donor-advised fund account. Examples of such intermediaries for conservative donors include:
• National Christian Foundation
• Knights of Columbus Charitable Fund
• Jewish Federations of North America
Opening a DAF account at one of these organizations offers you the opportunity to engage in philanthropy with like-minded people. And because they share your philosophical values, these DAF sponsors are far more likely to serve as good stewards of your philanthropic legacy. Their guidelines are clear about the grants they will approve.
For example, the National Christian Foundation is forthcoming with prospective donor advisers that staff will “only approve giver-recommended grants to organizations whose purposes and activities align with NCF’s beliefs and values.”
The succession policies of sponsoring organizations vary significantly, so pay attention to their rules and make decisions that uphold your philanthropic mission. For instance, at Fidelity Charitable, a donor can bequeath a DAF account to family members or other individuals who are then free to make their own grant recommendations. Or a donor can name one or more specific charities as beneficiaries of all remaining funds in an account.
At DonorsTrust, each original donor has the option of appointing a successor to advise on the account, but any grant recommendations must align with the original donor’s intent. Either the original or the new adviser may choose a sunset date for the account. If no date is selected, DonorsTrust will close out the account within 20 years of the death of the successor.
If you want your DAF account to continue to reflect your grantmaking choices, choose successors who understand they will be stewards of your philanthropic legacy and whose values and interests align with yours. Discuss your grantmaking preferences with them to assess their willingness to make grant recommendations in line with your wishes. You may want to leave some suggestions in writing or by video, especially if you are planning a significant gift in the future.
One final note: Donor-advised funds have experienced such a rapid rise in popularity that they have attracted scrutiny from philanthropy critics and regulators. Proposed reforms include:
- Disallowing donors to take immediate charitable tax deductions for contributions to DAF accounts, permitting such deductions only for gifts made from their accounts.
- Mandating an annual payout requirement of at least 5% for DAF accounts, similar to the requirement imposed on private foundations.
- Disallowing private foundations from counting gifts to DAFs toward their 5% mandatory payout.
- Limiting the life of donor-advised funds to 10 years or less.
- Increasing transparency regarding DAF donors and where the funds in their accounts are distributed.
Donors considering a DAF account should monitor potential regulatory shifts to ensure donor-advised funds continue to be the right vehicle to protect their philanthropic intent.
