Published November 20, 2013
Despite all of our differences, one characteristic of our nation that’s as American as apple pie is our generosity. We are simply--as individuals as well as collectively--a nation of givers.
Whether the cause is far away (the recent typhoon in the Philippines, vaccines for children in Africa) or close to home (Hurricane Sandy, building homeless shelters), when Americans see a need, our tendency is to band together, pitch in and try to make things better.
“Americans have always been philanthropic, it’s part of who we are as a society. We train our kids early on to help others,” says Eileen Heisman, president and CEO of National Philanthropic Trust, a non-profit that gathers research on charitable organizations.
Foreigners tend to see this characteristic as odd. They often consider it the government’s responsibility to feed the needy, provide disaster aid, buy musical instruments for schools, build hospitals, care for abandoned animals.
But Americans are inclined to take things into their own hands, whether it’s through existing structures such as religious groups or service clubs or, if need be, by creating an organization from the ground up. Heisman points out that private citizens, not the government, created the American Heart Association, the University of Pennsylvania, most organizations that support the arts, the first hospital in the United States and many other non-profits that have become household names.
One of the most successful startups in recent years, The Susan B. Komen Foundation, was literally started by one women who was determined to find a cure for breast cancer so that others would not die from it like her sister did.
The single most common way we support the causes near and dear to our hearts is by making financial donations--whether it's writing a check or giving cash. It’s fast, simple and provides an immediate tax write off. While helpful, there is a downside: the cash infusion is short lived. Now is about the time of the year when most people dig into their wallets to donate to select charities. But a relatively new vehicle for charitable giving is catching on in a big way: the donor advised fund (DAF) and it’s easy to understand why:
1. With as little as $5,000, you can open an account with one of the many organizations that sponsor a DAF. The most common contributions are cash and appreciated securities, but some donor-advised funds will accept antiques, art, precious metals and other valuables. (If you have unique assets to donate, check first.)
2. You determine how your contribution is invested by selecting from an array of mutual funds.
3. Since a donor-advised fund is, itself, a registered charity, you get an immediate tax deduction. (Heisman points out that you actually “get a better tax deduction than you would get with a private foundation.”)
4. You can instruct the DAF to immediately make a donation from your account to the qualified charity/charities of your choice. On the other hand, you can choose to wait and make “grants” at a future date. (Unlike a private foundation, there is no annually required minimal bequest.) As your investments increase in value, you have more funds to donate.
5. You can allow others- such as adult children- to also authorize distributions. In fact, a DAF can be passed from generation to generation, appointing others to take your place in managing and distributing the DAF account after your gone. In this way, it becomes a kind of family foundation without the need for lawyers and annual tax filings.
In Heisman’s words, “You can open a donor advised fund in one day, send a check or transfer in securities, and in less than a week you have a… charitable giving vehicle that you can pass on to your kids.”
This fund de-constructs the charitable giving process: You get a tax deduction for the year you make your contribution, but unlike traditional “checkbook philanthropy,” you’re not forced to decide which causes you wish to support at the time you make your donation. This gives you more time to investigate various organizations before making your decision.
Although donor advised funds have existed since the 1930s, they were sponsored by small, community-based non-profits. DAFs as we know them today, took off roughly 20 years ago when the first national fund was created by Fidelity Investments. Increased advertising has helped generate greater public awareness of DAFs, and there are now dozens of donor advised funds sponsored by financial institutions. This, in turn, has led to a surge in assets.
According to National Philanthropic Trust, as of the end of last year, there was more than $45 billion invested in DAFs- a gain of nearly 19% from 2011. Some of that was due to the rising stock market, which increased the value of the various mutual funds investing in DAF assets. But nearly a third of the increase came from new contributions, which hit a record high of $13.7 billion, something Heisman says was partly driven by fears that Congress was going to reduce the tax break for charitable donations.
As we once again prepare to enter the season of gross over-consumption, I’d like to propose we take a break in our buying frenzy and remember what this season is all about: giving thanks. Why not start a new family tradition by opening a donor-advised fund in your family’s name. As Thanksgiving dessert is being served, ask each guest- young and old- to nominate a charity and explain why s/he feels it is deserving of receiving a grant from the family DAF. Vote on it and authorize your DAF to disburse a contribution.
Repeat the process next year with an added element: a short report about how the family’s previous donation made a difference. Maybe you were able to buy the implements to enable a poor family to dig a well to get fresh water. Or, you provided care for three dogs in a no-kill shelter. Pass around photos of the tent you bought for tsunami victims. You get the idea. So will your kids and grandkids. Everyone wants to make a difference.
Don't have $5,000 to open a donor-advised fund? No worries. Remember that after Black Friday and Cyber Monday comes Giving Tuesday, which has gone global in just a year's time thanks to social media. With the click of your smartphone you can donate to thousands of charitable organizations around the world in just about any amount you want.
Looking for a unique gift for the person-who-has-everything? Consider the Global Giving Gift Card. You purchase the card (starting for a little as $10) and get the tax deduction. The recipient gets to choose which of his/her favorite charities receives the donation. As an added bonus, the cards are biodegradable. Or, you can simply send one electronically. You feel good. The individual who receives the card feels good. And so does the charity. It transforms one gift into three!
Best of all, in the midst of all the frenetic craziness of this season, every time you pause to give you get a small reminder of what is really important.