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Concerned about how marketing companies constantly bombard your children, nieces, nephews, godchildren, protégés, and other loved ones with appeals focused only on their wants and material needs? Want to teach them about actions that are twice-blessed—adding to their self-worth while helping build a better world for others? Want to combine the legacy you give them with the one you leave to society more broadly?
Then consider “giving” them a donor-advised fund (DAF).
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A DAF is essentially a charitable account, similar to one established through a 401(k) plan with investments in assets, often mutual funds, that the contributor selects but can later change or diversify. The money in that account, along with any earnings, functions as a type of endowment that can only be used for distributions to legitimate charities over time. The donor advisors for the DAF then advise on how and when to make contributions.
Today’s Crisis of Identity
Whatever the causes, recent years have seen a significant rise in suicides and depression among young people. Perhaps related, too many individuals of all ages feel marginalized or alienated and then turn to the extreme right, left, or violence as a way to feel empowered. Even in the policy field I work in, those who avoid extreme forms of escapism can become trapped in the mindset that they can only help a second person by taking from a third. Yet, that approach hardly aligns with our spiritual and religious teachings about our individual responsibility to love one’s neighbor and care for the stranger.
Simply put, the best way to escape intense self-focus is to serve others. Recipients of your DAF will be reminded regularly that they have the means to help others, ideally beyond what you provide. With a DAF gift, you also avoid preaching. You’re simply offering others the chance to participate in activities you support, even years after you’re gone. The funds remain in a “charitable solution” (the organization sponsoring the DAFs is itself a charity), so no one can use the money for anything other than distributing it to a charity. If the donor advisors pass away without naming successor advisors, the DAF sponsor will distribute the funds for charitable purposes.
The Democraticization of Endowed Giving
DAFs resemble foundations in that both hold endowments for charitable purposes. Still, DAFs entail very low costs, minimal donor administration, and maximum flexibility to adapt over time to evolving needs and the potential of various charities. DAFs democratize endowed giving by making it accessible even for people of average means. Many DAF sponsors allow one to start today with relatively modest amounts.
A DAF lets you set aside money and claim a deduction now, and, with rare exception, allows you or other advisors to the DAF to decide on the best recipients over time. This can be especially useful when you’re trying to accumulate funds for a specific purpose or when you want to sell an asset but haven’t yet decided which charities to support. When you give one to someone else, it serves as a valuable learning tool. As long as there is money in the DAF, the recipients of your DAF—or, more precisely, those to whom you’ve given the DAF advisory role—will continually be reminded of their ability to engage with charities, both with the funds you’ve provided and with their own resources.
Of course, for charities you want to support right away, there’s little reason to route money through a DAF. Most people I know who use DAFs also give directly.
Getting Started
I won’t go into more detail here; these resources are readily available from community foundations and many asset managers, including Vanguard Charitable, Fidelity Charitable, and agencies affiliated with the Jewish Federation of North America. Start small if you wish and learn by doing. Especially if you are involved in your community, I strongly suggest exploring how your community foundation supports local charities by engaging DAF owners.
Beyond the time you might spend deciding what to do, it takes only a few minutes to set up an account and issue an official check, even if only a down payment on what you want to achieve. If you choose to do this as a last-minute gift around a birthday or holiday, such as New Year’s, Christmas, Hanukkah, or Kwanzaa, you can always make a promise to the recipient and fulfill it later (as I do for many of my “restaurant gifts”).
Like any investment or habit, the sooner you begin a charitable effort, the more likely it is to compound over time and benefit everyone involved, including the ultimate charitable recipients.
Just a thought for the holiday celebrations. Thank you for reading my column and for coming back with thoughts, amendments, or disagreements of your own.
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