John Tyler, a board member at The Philanthropy Roundtable, has been involved in philanthropy for the better part of two decades. He sat down with Debi Ghate, vice president of strategy and innovation at the Roundtable, to talk donor-advised funds and giving for the long-term. (For Part One of this conversation, click here.)
Debi Ghate: What reasons would somebody have to put their money into a donor-advised fund and to use that kind of mechanism versus directly giving it to charities?
John Tyler: Number one, I think there are a lot of really good reasons to give directly to charities. People do continue to do that. Individual giving is the most significant source of giving into the charitable sector. That continues and should continue. But sometimes there are circumstances that a donor-advised fund is worthwhile either because the donor is wanting or perhaps needing to accumulate charitable assets in a particular place that they can then recommend in a larger bulk that the host dispersed to the organization. Maybe they’re aware that a charity that they like or a church that they belong to is going to be doing a capital campaign. Rather than wait for the campaign they want to start making donations and building up the opportunity to then contribute to the campaign or some different things like that.
Sometimes there’s a wealth event that happens for a donor. They’ve sold their business or won the lottery, who knows? But a wealth event, and they want to be able to contribute to charities. They want money to go out to charities, but they just haven’t put together the thoughtfulness behind which of the great charitable causes to support, which organizations within those causes, at what levels, and over what time. So, having a place to put some of that wealth to serve those purposes while they can meaningfully and substantively develop rational ways to disperse the funds, becomes a great use of a donor-advised fund, whereas setting up a donation—depending on the size of the wealth event—may actually be counterproductive because of the costs and time and opportunity costs associated with setting up a foundation.
Ghate: Sounds like there’s good reasons in the right circumstances to use a donor-advised fund. I’m wondering if there’s a bit of the same issue going on here. Is there actually a problem around donor-advised funds that needs solving? I hear a lot of calls for increased payout rates or to limit the amount of time funds can be held or disqualified dedications for certain types of investments like real estate. So you hear all of these attempts to restrict and enforce payout. Is there a problem that needs solving that you can see?
Tyler: There’s always going to be problems with things. And there probably are some donor-advised funds that the donor puts the assets in there and the assets just sit and the donor doesn’t pay any attention to it. It’s purely a tax-planning vehicle. But the donor advised funds hosts that I’m aware of, they’ve all got internal policies and practices—not just policies but actual practices—of outreach and getting to donors and saying, “This money is here; you need to be doing something with it over a reasonably short period of time.”
The donor-advised fund hosts not only prompt but act to put the money into grants to charities. Now, that’s not a law. There’s not a law that requires that. It may be that not every donor-advised fund host has those sorts of mechanisms in place. But the responsible donor-advised fund hosts that I’m aware of do have those policies and they do have those practices, and they work. Do they work as well as the critics would like? No, they don’t. But that doesn’t mean that the reasons for the donor-advised funds are wrong.
Just looking at a payout requirement—especially any type of annual payout requirement—the very real risk is that becomes the cap. “Okay, we’re going to do the 5 percent and that’s it,” where you’ve got donor-advised fund hosts on average paying out 20 percent. There’s the potential for unintended consequences that could be problematic.
Ghate: So, it’s a voluntary sector. This is another interesting aspect for me. It’s a voluntary sector where people are putting their money towards philanthropy of their own volition. This idea of paying out more quickly means that there’d be a preference for charities and causes in the short term versus causes or lifting up a community, or something that’s a much more long-term venture. Is a donor-advised vehicle right now a good potential way for someone to support a long-term cause that might take years or decades to actually support?
Do we as a society prefer the current population or future populations? If we prefer current populations, do we let future wealth generators take care of future populations?
Tyler: It currently is. Depending on if there are laws that change and impose payout requirements of some sort, that can have an effect on the long-term approaches. But there is a lot of debate. People are having debate in good faith. Do we as a society prefer the current population or future populations? If we prefer current populations, do we let future wealth generators take care of future populations? There are a lot of differences in opinion about that approach.
But there’s also a lot of approaches within those opinions. A key question is who is best suited to solve for that dilemma, if you will? Is it a one-size-fits-all government-imposed mandate or is there value in differing to donors? Or in the case of donor-advised funds, a donor-advised find host—and others who are responsibly and thoughtfully debating, even internally, debating with these issues and coming to the conclusions that they’re coming to based on the circumstances that they’re addressing.
Ghate: Right. It’s most certainly a debate, and often in a debate there are many reasonable positions that one can take on a whole range. So, what you’ re proposing is allowing for that range and allowing people to come to the conclusion that makes the most sense under their circumstances. If we take this argument further—which some people are within this debate—some people are calling structures such as donor-advised funds and their hosts “power structures” or “structures that are contributing to inequity in our society.” Do you see that argument? What would be the strongest part of that argument that would makes sense to you in terms of “this is part of a power structure if we have mechanisms like donor-advised funds”?
Tyler: Well, I have heard those arguments, I’ve read those arguments, and I’ve seen them, I’ve engaged people advancing those positions. We’ve had just wonderful conversations around them. But some of the major positions around the pro-power structure, if you will, is that the wealthy prefer different priorities. The ability to give through donor-advised funds, foundations, or otherwise advance those priorities—entrench them, and preserve them, and advance them.
You don’t have to have a lot of money to open or operate a donor-advised fund.
One of the things about donor-advised funds is you don’t have to have a lot of money to open or operate a donor-advised fund. It is not just for the wealthy. It is a way for everyday people to accumulate or serve whatever the purposes are that they’re wanting to serve for their philanthropic ends, as long as they’re serving philanthropic ends with them. One of the counter positions to the power is that foundations, donor-advised funds, wealthy family office, wealthy individuals, they’re almost never doing anything on their own. They’re almost never, if ever, doing anything by themselves. They’re working through grantees. They’re working through researchers. They’re working public policy priorities that come to their attention and sometimes policy makers that approach these folks, these organizations, and sometimes vice-versa.
There is a public input to the priorities. Yeah, the people with responsibility for expending the dollars are making the decision where to put those dollars, how much, when, those sorts of decisions. But it’s within a community, if you will, of interests, of priorities, of activities, and very much reflect a community—depending on how you define “community.” It’s not just a wealthy person sitting in a room by themselves and saying, “I put money here and it’s going to change everything.”
They are working through people and organizations who believe like they do across the entire spectrum of whatever spectrum you’re talking about—social, political, economic, religious. That’s part of the beauty of philanthropy. There isn’t a spectrum. It’s multiple spectrums that come to play. Part of the beauty of philanthropy as well is it’s not done in isolation.
Ghate: You’ve made a really excellent point here that all of the activity in philanthropy is necessarily a partnership. This requires partnerships. It is not just one person, sitting in a room with the dollars, handing them out. It involves other people. I think that’s a point that sometimes gets lost in our debates.
John, thank you so much. I think what we did today is take a step back and talk about the underlying ideas and the underlying concepts that are involved in these debates. There’s probably going to be an ongoing debate and a range of answers that individuals come up with.
What I appreciated today was having a chance to step back and understand what the components of the debate are. So, I really want to thank you for that and for your time.
Tyler: Thank you Debi. I appreciate the chance to have the conversation. I always enjoy our conversation. By the way, I always enjoy the debate, too. I do think the debate is healthy and I think the debate is good. When we can make sure that various points of view are heard and that they are heard responsibly and well, we do, as a society, get to better places.