DAF to the Rescue

“The DAF came to the rescue!” That’s how Deal Tompkins, a fund-raising consultant and lay leader in the Diocese of Virginia, described the benefit of creating a Donor-advised Fund (DAF), a tool for philanthropic planning. He took great pleasure in explaining how a DAF enabled a couple to make a gift to their parish, instead of making a tax contribution to the IRS, as a result of a real estate transaction.

Tompkins told the story of a couple in their 80’s, who had decided to sell their beach house because their children and grandchildren were not interested in keeping the property in the family. Their tax advisor helped them recognize that the appreciated value of the property would trigger capital gains taxes. They could pay the taxes, or make a donation to their church, which would offset those taxes. So they opted to make a direct gift to their congregation, to further the congregation’s work.

However, they later discovered that the sale of the property also affected their earned income, and soon they were facing another considerable tax bill. Instead of making a second direct gift to their church, the couple elected to set up a DAF. Through the DAF, they were able take an immediate tax deduction and then designate how those funds, along with any income/appreciation earned by the DAF, could be distributed over time. Again, they chose to benefit their congregation, establishing a DAF that would make annual grants in support of ministry, and would have a long-term impact on their beloved congregation.

According to research by the Presbyterian Foundation, which has administered DAFs for over twenty years and collaborated with ECF in the Fall of 2016 to develop ECF’s DAF, the last ten years have seen DAFs become the fastest-growing means of charitable giving in the United States. A DAF allows a donor to make an irrevocable charitable gift, take an immediate tax deduction, and choose beneficiaries as well as investment options over time. Grants from the DAF are distributed according to recommendations made by the donor. Tompkins remembered that one donor remarked, “I would never have been able to give this large a gift to the church if I hadn’t known about the DAF.” And Tompkins added, “It’s fun for me” to see the effect on the church and on the donors. “When people make gifts that they couldn’t dream they could do, they have such joy in making those gifts.”

Enthusiasm from donors for DAFs has been striking to Julie Simonton, officer for congregational development and stewardship in the Diocese of Virginia. “When the first newsletter went out about ECF’s DAF my email lit up,” she said. “Both clergy and laity were excited it was available,” she added, noting that most of them had gained experience with a DAF sponsored by a previous parish or a non-profit. “They knew what it was, what it did, and how effective it was…..Planned giving is not necessarily about the end of life. [Through a DAF,] donors can see it make a difference in their church now.” With a minimum gift of $2,500, ECF’s DAF is accessible for modest donors as well as those who have accumulated considerable assets.

Clyde Kunz of Tucson, AZ, former Vice President for Philanthropy at the Community Foundation for Southern Arizona, is also an ECF Board member and one of the first to set up a DAF through ECF. Recently, he experienced two years of increased income. By creating a DAF, he was able to take a tax deduction when he needed it and then make philanthropic donations over a period of time. He values the DAF because investment income earned by the fund is not taxable, and yet increases the amount he has to give. He also appreciates the partnership with ECF in vetting potential grant recipients. When he wanted to make a donation to a particular organization, he learned through ECF’s research capability that the group was not a non-profit organization. While he still chose to make the donation from his own income, the DAF management saved him undesirable tax consequences.

Kunz especially values the flexibility a DAF offers him, both in making grants and in investing the principal. And, he added, distribution of the DAF funds is one way he can proclaim the Gospel. “Every time a check arrives from the Episcopal Church Foundation [from my DAF], that organization sees the Episcopal Church involved in their work.”

As Executive Vice President and CEO of the Presbyterian Foundation, Greg Roussos has seen changes in recent years in how and why people give financial support to organizations. As trust in national organizations has fallen, Roussos said, donors have wanted to become more engaged with how their funds are managed and spent. Their desire to have more control and to give where their interests lie has driven growth in the utilization of DAFs.

Roussos noted that DAFs could serve as “a teaching tool and a legacy to the next generation.” The donor can designate successors to recommend disbursements of DAF funds, ensuring that grant-making continues after the original donor’s lifetime. Similar in many ways to a family foundation, but without many of its complications, a DAF is “a great way to engage younger generations in the process” of philanthropy.

Deal Tompkins, who has helped numerous donors decide how they want to make charitable gifts, summed up the benefits of a DAF for donors and for congregations that receive their grants. “It’s nice to make a planned gift through a will. But it’s even nicer for the donor to see the impact while they’re alive. They can see the impact on their church and on its ministries.” ECF offers support to donors who want to know more about how to set up their own DAF. And ECF helps congregations grow donors’ awareness of philanthropic opportunities, like the DAF.

Interested in learning more about DAFs? Click here to view our ‘Donor-advised Funds - What Leaders Should Know’ webinar.

For more information about a DAF and other planned giving instruments, contact Josh Anderson, at 800-697-2858 or by e-mail at giving@episcopalfoundation.org.

Demi Prentiss is a Program Consultant in the Endowment Management Solutions division of Episcopal Church Foundation (ECF), offering support to dioceses and congregations in structuring and growing their endowments.