But Who Decides? Choices, Limits, and Strategies of a DAF

But Who Decides? Choices, Limits, and Strategies of a DAF

“But how do you choose who to give to?”

In my conversations with folks about DonorsTrust, this is a question that frequently comes up – far more often than I expected.

The answer is that the client chooses. Rather, I should clarify that the client recommends or advises. That is, after all, why we call it  a donor-advised fund and not a donor-directed fund.

Once someone makes a contribution into a donor-advised fund, it is an irrevocable donation (that is why DAFs offer more friendly tax provisions than does a private foundation). The contribution goes into the designated fund. At that point, the advisor on that fund can recommend organizations to receive grants.

But why is there confusion – which comes both from organizations and the donors themselves – about how giving decisions get made?

Just Give Anywhere?

The reason this question comes up with us at DonorsTrust lies, I believe, in the fact that we have a specific missional focus. We actually do have some limits on where contributions can go:

  • The grantee has to be a 501(c)(3) public charity in good standing with the IRS (but that is a rule for all donor-advised funds);
  • It can’t have a mission or be working on initiatives that actively promote expansion of the size and scope of government;
  • It should only take a limited amount of government funding, and ideally none at all.

What that means in practice is that the organizations we support epitomize our goal of using private philanthropy to advance limited government, personal responsibility, and free enterprise.

Since inception, DonorsTrust has contributed to more than 1,700 different charities. There are thousands of others that might otherwise qualify for a DonorsTrust grant were it not for the fact that we lack a recommendation by a client to make such a grant.

Those limits probably make it seem as if we are  more involved in the decision making than we really are. In truth, our giving guidelines are part of our promise to clients to help preserve their donor intent. For those who see these limitations as too restrictive, then DonorsTrust would not be a natural fit.  And that’s OK – that’s just the market at work.

The Blessing of Limitations

Perhaps it seems counter-intuitive, but one benefit to working with a mission-driven donor advised fund such as DonorsTrust comes from these limitations.

In business school, I recall reading a case study of Pixar. It spoke of the need to place boundaries on what the artists created, because otherwise the infinite scope of possibilities could actually stifle creativity.

This was an eye-opener for me, though it isn’t a new concept. This idea formed the basis of Barry Schwartz’s 2004 book The Paradox of Choice. Go farther back into philosophical thought and you find Sartre arguing that freedom is always found within limits, and it is these limits that allow for such things as the beauty we find in art.

Like driving on a road or bowling down a lane with bumpers, the limitations of a mission-driven fund focus a donor’s giving, even if it never gets focused further through a more narrowed strategic direction.

So Who Is Choosing?

We spend a lot of time at DonorsTrust engaging with the non-profits that make up the liberty movement. Ultimately, we want to understand what they are doing, what new initiatives are out there, and where the successes and challenges are. We do this so we can better aid our clients in making their own choices – when they ask for such advice.

As a rule, though, it is the clients making the recommendations of where grants might be sent. They’ve already made one major decision to partner with a donor-advised fund that shares their principles. Then, the subsequent grant requests they make come from their own personal philanthropic strategies, which are as varied within those principles as the individuals themselves.

It is a mistaken idea that donors using a donor-advised fund have outsourced their decision-making. In fact, the opposite is true – a donor using a donor-advised fund, particularly a mission-driven fund, shows an interest in being quite strategic and thoughtful in his or her charitable giving.

Go ahead. Give yourself some limits. Turns out it is the limits that set us free.

About the Author

Peter Lipsett Peter Lipsett
Peter joined DonorsTrust in 2014. His focus at the Trust is to develop new ways to engage potential and existing clients and to further increase the organization’s impact. Before joining the DonorsTrust team, Peter worked for nearly a decade in donor development in various capacities at the Charles Koch Foundation and Koch Industries.

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