Donor Advised Funds, Community Foundations, and the Promotion of “Good” Philanthropy: Part 1
Jul 13, 2020
This is the first article in a two-part blog series by Contributing Editors: Jeff Hamond, Vice President of Van Scoyoc Associates; and Peter Panepento, Board Chair of the Community Foundation of Howard County, Maryland.
It’s easy to feel paralyzed these days by the massive challenges facing our nation. But donors who want to make a difference in helping families impacted by COVID-19, advancing racial equity, or supporting other causes that are important to them can lean on an important tool that can help them put their passions into action: Donor Advised Funds (DAFs).
DAFs are an increasingly popular option for those who are looking for a flexible way to give. You can use cash, stock, or other assets to set up a fund and then recommend grants to nonprofits when it’s convenient, or at a particular time of great need. You can add to the fund at any time – and donors have the flexibility to recommend grants as regularly as they like.
And when you set up a DAF with a community foundation, such as Fairfield County’s Community Foundation (FCCF), you have the added benefit of working with a team of professional staff who can help you identify high-performing nonprofits working on the causes you care about, right in your hometown. The foundation also handles all the administrative tasks for you – managing the investments, keeping track of gifts and grants, and sending donors statements of activity.
It should come as no surprise, then, that DAFs have been growing quickly. Contributions to DAFs have increased by 86 percent over the past five years, according to the National Philanthropic Trust’s most recent Donor Advised Fund Report. DAFs, in fact, now account for 12.7 percent of all individual giving in the United States. Those are big numbers.
And because donors can take a tax deduction when they contribute money into a DAF, the tool has become a bit of a lightning rod among critics who want to dictate how donors should give their money to charity. We are regularly pushing back on critiques that don’t reflect how DAFs work in the real world, including right here in Fairfield County, Connecticut.
For example, despite the fact that DAFs at many community foundations have average payout rates of more than 20 percent, we’re constantly combatting a false narrative that this high payout somehow “hides” huge levels of inactivity. Several years ago, in fact, after a DAF report showed an average payout of 16 percent – more than three times that of private foundations – one critic pointed out how if 20 percent of the funds at a DAF sponsor had a payout of 80 percent, but 80 percent of the funds paid out nothing, that would be an average payout of 16 percent across all funds.
And this is what’s frustrating to some of us working in the advocacy space: the mere fact that you can create that calculation using what you learned in Algebra 101 doesn’t mean it’s what happens in real life. Anyone working closely with a DAF sponsor such as a community foundation, or working closely with Donor Advised fundholders, knows that it isn’t the case. We’re working hard to push back on these false narratives, because we know through our experience working with community foundations, such as FCCF, that DAFs help more money get to charity, not less.
In fact, in most cases, donors choose to give through DAFs not because of tax incentives but because they are the only cost-effective option for making complex gifts of stock or property — or for converting the sale of a family business into a new philanthropic resource.
As chairman of the Community Foundation of Howard County, Peter recently worked with a donor wanted to use the proceeds from the sale of a business property to support nonprofits in his community. Rather than selling the property on his own and then going through a complex process of using the proceeds of the sale to write checks to multiple nonprofits and keeping laborious tax records, the proceeds from the sale were instead directed to a DAF at the Community Foundation of Howard County.
The donor is now in the process of making decisions about how to use the $180,000 in proceeds to support nonprofits in his home region.
But this is just one way DAFs are used.
Other donors choose DAFs because they want to create an ongoing and steady stream of revenue to nonprofits that will ultimately provide resources that are worth many times more than their original gift. For these philanthropists, a Donor Advised Fund at a community foundation is much less costly than a stand-alone private foundation to serve the same purpose.
This flexibility is a key reason why DAFs have grown so popular. And it’s also why donors are often able to mobilize money from their DAF accounts quickly during times of need.
Van Scoyoc Associates
In 2011, Jeff Hamond recognized something few others did – that philanthropic organizations were not doing enough to tell their story in Washington. He felt so strongly about this, he left a senior economic policy position on Capitol Hill to develop and lead Van Scoyoc Associate’s Philanthropy Practice – the only one of its kind.
Today, as the field of philanthropy evolves quickly – with private foundations growing in policy influence, and also living donors, mission/impact investing, and social entrepreneurs playing an expanded role – Jeff is one of sector’s fiercest advocates. He understands the enormously important role philanthropy and not-for-profits have in American society and culture, and helps these organizations highlight their work for policymakers. As a Vice President at VSA, Jeff works directly with private and community foundations, and others in the philanthropic space, to share the good work they are doing in local communities, as well as educate lawmakers about the consequences of adverse policy decisions.
Before joining VSA, Jeff spent seven years as Economic Policy Director to Senator Charles Schumer (D-NY) and prior to that served in similar roles for Senators Kerry (D-MA) and Bayh (D-IN). Jeff also had leading roles in policy development at two well-regarded non-profit organizations – Redefining Progress and the Progressive Policy Institute.
Jeff earned a Bachelor of Arts at Tufts University, then obtained a Master in Public Policy from the John F. Kennedy School of Government.
Community Foundation of Howard County
Peter Panepento is co-founder of Turn Two Communications, a Columbia-based public relations and communications firm that specializes in working with community foundations, nonprofits and socially minded companies. Panepento leads the Turn Two Communications’ philanthropic practice, including its work developing and executing a national PR and communications strategy for the Community Foundation Public Awareness Initiative, a coalition of 125 U.S. community foundations working to advance fair tax policies for donors and showing the importance of philanthropy to communities.
In addition, Panepento provides media and communications support to other community foundations—including The New York Community Trust, Greater Washington Community Foundation, Community Foundation for Southeast Michigan and the Puerto Rico Community Foundation—as well as to nonprofits and companies.
Before becoming a consultant, he spent more than 20 years as a journalist, most recently at The Chronicle of Philanthropy, where he served as its first online editor and later as assistant managing editor. He also served as a senior vice president for the Council on Foundations, wrote Modern Media Relations for Nonprofits and contributes to Nonprofit Marketing Guide.
Panepento lives in Columbia and has been a member of the board of the Community Foundation of Howard County since 2016.