by: Melissa Bank Stepno, President & CEO
For most of us, when we think of omni-channel fundraising, we think of the three most common giving vehicles: donating online with a credit card, mailing in a check, or providing payment information during a telemarketing phone call.
However, the options for potential giving vehicles are way longer than just “The Big Three.”
PayPal, give-by-text, cryptocurrency, gifts of stock, giving circles, donor advised funds, private foundations, real estate, impact investing, LLCs* … the list just goes on!
While some of these are more accessible to the ‘average’ donor than others, for our high-net-worth donor population, the strategy for choosing which giving vehicle to use, and when, can be very complex.
At the 2024 DAF Giving Summit, there was an entire session led by Sharon Schneider from Integrated Capital Strategies that discussed her process for consulting with UHNWIs on how to craft their own personal giving strategy.
Key takeaway: major philanthropists use more than one giving vehicle depending on what they are giving, to whom and for what purpose.
One of the topics that she covered, and the one that I get asked about most frequently, is why a family would choose to have both a donor advised fund and a private family foundation.
In fact, according to Trends 2020, a benchmarking survey of family foundations from the National Center for Family Philanthropy, we know that more than one-third of families who have family foundations also have DAFs with a community foundation. But again, why?
Here are just a few of the reasons that I am aware of:
Mission
Many private foundations are set up with a specific purpose in mind (perhaps giving to health care and social services), but a family may also want to provide philanthropic support to a broader range of nonprofits (perhaps an alma mater or the local theater)
Or, sometimes a family may be divided on certain politically-charged or socially-motivated issues and want all giving from their foundation to have full family consensus.
In both scenarios, having a separate DAF (or multiple DAFs!) provides the ability to stretch beyond a foundation’s stated mission or an entire family’s interests.
Privacy
Sometimes, even those who are very public about their philanthropy, want to give privately.
While all gifts from a private foundation are listed on the foundation’s annual 990, gifts from a DAF have no public reporting requirement.
Therefore, for families with foundations who may want to make certain gifts anonymously, DAFs are an attractive alternative.
Independence
Many family foundations are controlled by multiple generations of family members who may, or may not, want to collaborate on making giving decisions.
At the conference session I mentioned above, one of the conversation topics was the sense of “forced collaboration” between family members. Full collaboration is more of an ideal that isn’t always the reality in the modern world.
So, creating separate DAFs for individual family members or households allows them to make some of their giving decisions independently of the larger group.
Geography
In one very specific case study, I heard from a 4th Generation philanthropist whose great-great grandparents established a family foundation with the stipulation that all funding from the foundation be provided to non-profits within 25 miles of the family homestead.
Why? Because that is approximately how far a horse can travel in one day and they wanted all of their giving to be “close” to where the family lived. Remember, four generations ago it was common for multiple generations within a family to live on the same land, and neither the automobile nor airplane existed.
But, today, transportation options far broader than by horseback and the family has members scattered across the United States.
So, transferring funds from the foundation to individual DAFs at the local community foundation allows family members across the country to support organizations “close” to their local communities while keeping with the spirit of the founding documents.
Speed
Many foundations have complex structures established for approving distributions. Let’s say a family wants to give to an emergent situation, like a natural disaster, giving via a DAF can be immediate and without delay.
Distribution Requirements
Unfortunately, there are also some ‘bad actors’ who use their DAF simply to satisfy the 5% distribution requirement from their private foundation. Luckily, this seems to only happen in the minority of cases, but it is important to note because this type of behavior does exist.
So, if I had to sum up the list above in two words, it would be Flexibility vs. Control. Simply put, a DAF provides significantly more flexibility than a family foundation. On the other hand, a foundation provides its founders with significantly more control as to how their assets will be used.
We already knew that philanthropy is not a “one-sized-fits-all” endeavor. Hopefully this post provided some insight into the rationale behind some of the flavors (or sizes!) we might encounter with our largest donors and prospects.
*For more reading on some of the other flavors, earlier this year, my colleague Christine Bariahtaris published an article for Intelligent Edge on giving via LLCs.
