Tweet This
We are entering the golden age of donor-advised funds. The National Philanthropic Trust’s 2018 Donor-Advised Fund Report found that the number of donor-advised funds grew by 60.2% from 2016 to 2017 with total charitable assets in these accounts now $110.01 billion. The growth has been attributed to double-digit market returns combined with a massive tax law change allowed for these funds to grow in their popularity.
From first glance, it appears that Americans are moving in a more charitable direction. But buried in the report is an interesting fact: In 2017, the grant payout rate was only 22.1% or $19.08 billion. The remaining funds stayed invested inside the donor-advised funds or DAFs as they are known, accruing investment fees. Further, based on the rules around donor-advised funds, there is no way to know when the funds from these charitable accounts will actually make their way to 501(c)3s that are actively engaged in charitable work.
For many smaller charities who are on precarious budgets, the idea of billions of charitable dollars available is tantalizing. Yet many know that the funds might never be available to them.
Dr. Carla Knorowski, CEO of The Abraham Lincoln Presidential Library Foundation (ALPLF) addresses the frustrations many smaller charities feel when she says, “I look at these DAFs and have this wishful gaze in my eyes and say how do we gain access to these funds? Donors are not aware of us. We just don’t get that access to the fund and the people managing them.”
She has a good reason to feel that way in light of the financial issues that The Abraham Lincoln Presidential Library Foundation is facing.
The Lincoln Library Financial Dilemma
Abraham Lincoln's Library is in trouble. The back story is quite simple: In 2004, a Presidential Library was established in his honor in anticipation of the upcoming 200-year anniversary of Lincoln’s birth. But this presidential library was different from the others as the president it was celebrating wasn’t available to donate artifacts or his archive. Nor could he travel the country to obtain donations. It was up to the Library to develop a donor base and a collection worthy of the man they represented.
Unlike how we approach Presidential memorabilia today, in the time after Lincoln’s death, it was an open market. For the 140 plus years since his death, key artifacts – from the gloves he wore on the night of the assassination to his stove pipe hat – were in the hands of private collectors. Only small groups of Americans ever got to view these priceless items.
Then, just a few years into the Library’s existence, the historians learned that one of the biggest collections of Lincolniana was going to be sold. Taking a bold step, the board purchased it for $23 million and financed it through a loan in 2007. It was a risk, but a calculated one.
“Abraham Lincoln is in the public domain and is being used to sell things from carpets to cars – you name it,” says Knorowski, who has headed the Library Foundation since 2011. “At the time of the purchase, no one could foresee that within 18 months we would fall into one of the deepest economic crisis of all times.”
As a result, the Library and Lincoln are in peril as the remaining loan of $9.7 million is due in October of 2019. The library has refinanced several times but as Knorowski notes, “How many times can you refinance when you are a fledging institution in a time of rising interest rates?”
While the plight of the Lincoln Library Foundation is compelling, upon first glance, it really doesn’t have much to do with donor-advised funds. That is until you realize that the Lincoln Library Foundation and donor-advised Funds are both 501(c)3 charities - and while the former is hosting a GoFundMe page to survive, the latter is flush with cash.
Donors Can Make A Difference
While the Lincoln Presidential Foundation might not be a compelling charity to some, it's current plight represents thousands of charities nationwide that serve charitable endeavors focused on health, low- income, and the arts that struggle to survive. But the billions in donor-advised funds brings up the philosophic debate of on the actual power of the charitable dollar at work. After all, is a donor-advised fund really a charity if the funds don’t ever get to the actual charities?
One of the most prolific examples how important it is to actually have a charity receive funding occurred in the summer of 2014 and the ALS Water Bucket Challenge. It was a unique – and very odd – way to raise funds and awareness for a charity. Amazingly, it worked. The Challenge raised over $115 million for ALS, and those donations have made a huge impact on fighting this devastating disease.
What is clear is that if the donations had not gone directly to the charity and been put to work immediately, this level of progress would have taken years, if not decades to achieve. More directly, if the $115 million raised for ALS had gone into donor-advised funds instead, based on current grant making rates, only 20% of the money would have been parsed out annually – slowing the progress to find a cure.
The Onus Is On The Donor
In comparison to ALS, the Lincoln Library Foundation is still in limbo as it searches for donors to help save it. As a result, this is where the idea of active use of a donor-advised fund becomes key. Active use means, while large donations may be made to their DAFs annually, grant-making must be a larger percentage. One of the best ways to motivate this may be to have an annual requirement like foundations where a percentage of the account must be given out.
Further, the onus is on the donor-advised fund owners themselves. They need to look beyond the mega-charities to see ones that are struggling. The beauty of the donor-advised fund is it gives immediate tax benefits but it also gives the donor time to make thoughtful charitable decision.
For example, when an advisor encourages a client to invest in a donor-advised fund, they should also focus the donor on developing a mission statement on what types of charities the donor supports and then help curate a list of both large and small charities in that area. Donors set up donor-advised funds to make a difference. Becoming aware of small charities that could benefit might make the donor process even more satisfying. If the Lincoln Presidential Foundation is any indication, the ability to access funds sooner could help them save important American artifacts for Americans to learn from today and in the future.
Ultimately Knorowski expresses the pressing needs of many smaller charities that struggle nationwide. She points out, “We don’t have 5 years. There are charities that are living and dying, waiting for some of the philanthropic support. Look beyond your usual suspects of giving. There are some charities that are so incredible and have such a storied history and are cornerstones of American in arts, cultures and education. Some are falling off the radar that is just as worthy and just in need.”
As donor-advised funds continue to rise in popularity and assets, changes need to occur so that the funds get to charities sooner, rather than later. The best group to address this are donors themselves. As Lincoln himself said, “Leave nothing for tomorrow which can be done today.” That approach from donors might help even save Lincoln's Library.
