A New Perspective on Donor Advised Fund Regulation

As the fastest growing vehicle in charitable giving, donor advised funds (DAFs) have become a major part of the philanthropic landscape in America¹. There are numerous features that have contributed to the rising popularity of DAFs, including simple start up and management, maximized and upfront tax benefits, the ability to accept a variety of assets, and no restrictions on the timing of fund distribution.

With donors flocking to DAFs, there has been growing national conversation in charitable and legislative circles on how these funds ought to work to achieve the greatest good. One of the primary points of discussion has been how, or if, distribution requirements should be applied to ensure dollars in these funds are actively flowing to charities.

Do DAFs Need Payout Regulation?

Advocates of implementing distribution requirements argue that the absence of regulation is harming working charities because there is no guarantee fund balances will be imminently sent out to recipients². However, others would argue that distribution regulation tends to reduce the rate at which dollars are granted³. As seen in the private foundations space, the 5% minimum distribution requirement often becomes the maximum that is distributed⁴. DAFs already grant out at 4 times the rate of private foundations, so as these funds grow in popularity, the question will continue to be asked if regulations will help or hinder the distribution of dollars to the frontlines¹.

The Signatry’s Perspective

As a foundation that sponsors DAFs, The Signatry routinely lives in the tension of these two views. With a vision of solving the world’s greatest problems, we put our best efforts towards dollars flowing out to fuel good work around the globe. As a ministry dedicated to seeing families flourish for generations, we also understand the value and importance of maintaining and passing on charitable assets. To address if distribution regulations are needed to increase impact, an important perspective to clarify is that every dollar in a donor advised fund, whether it is granted out today or saved up for future granting, is contributing to generational impact:

Dollars granted out today will affect individuals and communities and change the trajectory of their lives and their descendant’s lives forever.

• The woman freed from trafficking can go on to free others
  through a nonprofit.
• The orphan who is adopted completes a family and adds a
  chapter to its story.
• The child that is given an education can start a business that
  changes a community.

Dollars that stay within the fund longer are impacting generations, too.

• Balances can grow to make larger grants in the future possible and still achieve impact today through values-based investments in organizations doing good work in the world.
• Families can transform over time by passing on values, practicing stewardship, and discovering the power and joy of generosity.
• Everyday donors can build up fund balances to make special gifts like funding an adoption outright, sponsoring a missionary journey, or planting a church.

This perspective reveals that generational impact is inherent to how donor advised funds work. The notion that dollars not granted today are dollars failing to do good falls flat when considering how dollars that stay in the fund can have as much, if not more, impact today and down the road. Even with this perspective, however, it still is critical for each DAF sponsor to take responsibility for determining how they balance the “now” and “later” of grantmaking based on the best interest of their clients and their own charitable purpose. Whether through self-imposed policies, new ways of engagement, or other options, it will take a multi-layered approach to continue to foster greater generosity.

A Community Committed to Generational Impact

At The Signatry, we see many donors committed to sending resources to the field, with 70% of funds distributing grants above the industry standard, and we also see families, businesses, and charities strategically building up their fund balances with great purpose in mind. As our donors respond to God’s call to give, we remain committed to partnering with them to see families endure and lives changed as we champion incredible generosity.

 

1 – National Philanthropic Trust, “The 2020 DAF Report”
2 – Forbes, “There’s a Target on Charity’s Booming Donor Advised Funds”
3 – Nonprofit Quarterly, “Do Donor Advised Funds Require Regulatory Attention?”
4 – The Foundation Center, “Understanding and Benchmarking Foundation Payout”