We often tout the flexibility that comes from a donor-advised fund. One piece of that flexibility is the way donors can use the fund for varying timelines for their giving.
I never cease to be amazed by the varied and diverse approaches our account holders take to growing and granting from their donor-advised funds.
While critics of DAFs accuse such funds as being a dead-end for charitable dollars, research suggests otherwise. A recent study out of Donor Advised Fund Research Collaborative showed nearly a fifth of a donor’s initial investment into a fund is granted out within the first year, and more than 50% is given within five.
We know that to be true at DonorsTrust, as we have an extremely active donor base.
Some donors, however, will take a longer view for a portion of their fund. It’s for this reason that we, like most DAF providers, accept advice for funds to be invested in various investment pools.
Depending on the time horizon–and, of course, some tailwinds from a growing economy–such investment can lead to more funds in the account than when you started–and that means more money for charity and a greater impact long-term.
However, a poorly thought-out giving plan can result in less money for charity. We strongly encourage you to leave any money that you expect to advise as a grant over the next twelve to twenty-four months in the money market option.
Indeed, a pattern of advising that the majority of a contribution be allocated to an equity pool, followed within a month or two advice for a grant that will require liquidation of amounts held in the pool, my well result in DonorsTrust not following your investment advice.
DonorsTrust Investment Options
At DonorsTrust, the default option is for contributed dollars to go to the money market. It has been some time since cash in a money-market account accrued real gains through interest, though this is likely to change in the immediate future as the Federal Reserve enters a rate-hike cycle.
Still, for donors keen on making donations within a short (usually less than a year) time horizon, leaving some or all of one’s funds in cash makes great sense.
For donors with a longer time horizon, we can group the DonorsTrust investment options into a few categories.
We offer three managed funds: conservative, moderate, and growth. We work with a terrific team of Merrill Lynch advisors in Reston, VA, that shares our commitment to free-market principles. The management fees are a bit higher on these but each has shown consistent returns over the years.
We recently added two investment options specifically built in alignment with the shared principles of DonorsTrust clients. These two funds are offered by 2ndVote Advisers.
One is the 2ndVote Life-Neutral Fund, which includes companies that are neutral if not friendly to a pro-life position. The other is the 2ndVote Society Defended Fund. It selects companies for its index based on factors such as border security, stance on illegal immigration, reliance on foreign vendors, and other factors.
More on these funds and our decision to add them can be found here. We may add more of these principled, aligned funds in the future.
ETFs and Bonds
This catch-all category covers the remainder of our options. Here you’ll find several ETFs, a real-estate fund, and bond funds.
These options allow donors to customize a portfolio based on their time horizon and personal risk tolerance for the charitable dollars. Some donors place everything in a single investment and others split it up.
DonorsTrust is not affiliated with an investment advisor group, and does not receive compensation (direct or indirect) or donations from any investment advisor group.
How do all these options do? You can see the most recent quarterly results by clicking here. DonorsTrust clients also can request a reallocation of funds at any time.
What if you have positions in securities or investments that you’d like to keep after you donate them?
The general DonorsTrust policy is, if you donate a security to fund your account, we immediately liquidate it with the cash proceeds going to your fund.
Positions in privately held companies are different in that they may not be able to be liquidated immediately. Those gifts are accepted by DonorsTrsut only after thorough due-diligence by our officers, which may include engaging outside legal counsel and accountants to evaluate the company which must then recommend the board approve acceptance, will be held until such time that they can be sold.
Generally, such gifts are accepted only if they are of a significant value. Depending upon the value of the donation, additional administrative fees above and beyond our usual fees may apply. All due diligence costs are also recovered from the contribution, and such gifts are almost always subject to a gift agreement executed prior to acceptance of the gift.
Finally, keep in mind that the donor of property that is not traded on a public market in most cases must file a Form 8283 to substantiate their charitable deduction. The cost for the 8283 must be paid by the donor, and that cost does not generate a charitable deduction.
Accounts over $1 million have the option to recommend an outside investment advisor. If approved by the officers and board, the investment advisor is engaged by DonorsTrust, and DonorsTrust, working with the investment advisor and the DAF account advisor, structure an investment option with discretion left with the investment advisors to implement the plan.
Importantly, there can be no direct discussions between the investment advisor and the DAF account advisor concerning trades within or the investment policies of the DonorsTrust investment account, if approved. This option can allow donors to shape investment of amounts allocated to their DAF so that the investment plan coincides with the donor’s charitable giving plans..
Why invest charitable dollars instead of giving them away immediately? Different donors will have different reasons.
In my own personal experience, the decision came down to time and strategy. My wife and I decided to dedicate a portion of home sale proceeds to charity. However, at the time, we were not in a position to make a strategic decision about where to give that money. We first wanted to settle into our new community, identify needs, and see where we can be most helpful over time.
Instead, we placed those dollars in our donor-advised fund and invested them. By investing those dollars, our aim is to have more to give when that time comes. Put another way, we hope to have a greater impact in a few years both because we can target the giving more strategically and because there will be more to give, thanks to the option to invest the dollars within the DAF.