Donor-advised funds are pools of capital that were created to enable philanthropists to create a body of funds out of which they can donate to charities over the course of a number of years. All contributions are tax deductible TODAY, but grants can be made over many years, due to the fact that the funds are "advised" by donors, rather than directly "managed" by them.
Donor-advised funds have a second, less explored, audience. For young, budding philanthropists, they offer a powerful vehicle to pool wealth, resources, and most importantly, the power of compounding, to make significant philanthropic impact even at a young age.
The following resources offer some good background:
- For a basic introduction to philanthropy, and a solid argument in favor of donor-advised funds, see "Philanthropy 101: Donor-Advised Funds," by Elfrena Foord.
- Wikipedia offers a basic definition of donor-advised funds
Introduction to Donor-Advised Funds
There are a variety of organizations that will host donor-advised funds. You can find a list of the largest here. The largest players by far are Fidelity Charitable Gift Fund, Vanguard Charitable Endowment Fund, and Schwab Charitable Fund.
Key considerations in selecting a host foundation include the following:
- What is the minimum initial contribution?
- How high is the annual management fee? - Anything above 1% is probably too high)
- What options are offered for investing the fund's corpus? Fidelity and others tend to require their users to invest only in Fidelity mutual funds and other investment vehicles. Other managers offer investment pools. Thus far, the only place we have found with complete investment flexibility is the American Endowment Foundation, which actually allows donors to recommend specific securities and/or mutual funds.
Host Foundations
There are a host of great resources you can use to find great non-profits in need of your help. At Grafton Street Fund, we tend to focus on smaller charities in need of "catalytic" contributions. But regardless of your focus, the following resources should be helpful in your search.
- Charity Navigator offers great insight into how charities are actually managed, using their tax filings, and also offers ratings of charitable efficiency on a scale of 1-4 stars.
- GuideStar offers a similar service that can be equally useful.
- Give.org is less easy to use than the other two, but also offers basic reports on the efficiency of charities.
- Or just check out or list of past recipients!
Starting a donor-advised fund is fairly straightforward.
Charter
The process typically starts with a Charter, which defines, among other things, the following:
- Mission - What does the fund want to do?
- Membership - Who are the members of the fund, and what are there voting rights? Does each member have one vote, or are votes apportioned relative to the amount contributed?
- Management - Who will represent the fund on its Board of Officers? What positions should be included on the Board, and how will they be elected?
- Contributions - How much should / will members contribute to the fund? How should the fund's corpus be invested?
- Grant recommendations - How will grant recommendations be determined?
- Termination and amendments - What are the conditions under which the fund will be terminated? How can the Charter be amended?
Starting a Donor-Advised Fund
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The Grafton Street Fund
