Lemon Tree Images/Shutterstock
In this month’s Higher Ed Careers interview, Andrew Hibel spoke with Tony M. Oommen, CFP, vice president and charitable planning consultant at Fidelity Charitable. Oommen discussed his current position, donor-advised funds (DAF), and how donors can take advantage of DAFs for charitable planning. Hibel and Oommen also spoke about how colleges and universities can work with donors and DAFs to best suit their needs.
Andrew Hibel, HigherEdJobs: Can you offer a brief explanation of Fidelity Charitable and please describe your role?
Tony M. Oommen, CFP, vice president, charitable planning consultant, Fidelity Charitable: Fidelity Charitable is an independent public charity that has helped donors support more than 255,000 nonprofit organizations with $30 billion in grants. Established in 1991, Fidelity Charitable launched the first national donor-advised fund program. The mission of the organization is to grow the American tradition of philanthropy by providing programs that make charitable giving accessible, simple, and effective. We have streamlined the process of strategic giving for a broad range of donors, allowing them to contribute many types of assets and plan their giving more systematically, maximizing their generosity.
My role as a Charitable Planning Consultant is to serve as a resource to professional advisors in a four-state geographic region. I maintain relationships with attorneys, accountants, wealth advisors, and consultants with charitably-minded clients, serving as a point of contact on behalf of Fidelity Charitable’s donor-advised fund program and providing them with charitable planning ideas and updates on philanthropic trends.
Hibel: What is a donor-advised fund?
Oommen: A donor-advised fund (DAF) is a program sponsored by a 501(c)(3) public charity. It’s like a charitable investment account, with the sole purpose of supporting charitable organizations you care about. When you contribute to a charity that sponsors a DAF, such as Fidelity Charitable, you are eligible for an immediate tax deduction. You can then recommend grants over time to any IRS-qualified public charity and invest the funds for tax-free growth.
Because a donor is making a charitable gift to the sponsoring organization of the DAF, legal control of the funds resides with the sponsoring charity. But the donor can — subject to the specific policies of the sponsoring charity — recommend grants to charities from the DAF account, recommend investment allocations, nominate an investment advisor, select a name for their account, select successors to take over advisory privileges after death, and select charitable beneficiaries after death.
Hibel: How are donors using their donor-advised fund accounts?
Oommen: Donor-advised funds are the fastest growing charitable giving vehicle in the United States, outnumbering private foundations by almost 5:1. The number of DAF accounts increased by an incredible 60 percent from 2016 to 2017. And these donors are actively using their funds to support the charities they care most about, with an aggregate payout rate of 22.1 percent in 2017.
There are three primary reasons for a donor to choose this approach to charitable giving. The first is administrative ease. The donor receives only one tax receipt, and the DAF sponsoring organization handles all of the administration, due diligence, and recordkeeping responsibilities. Subsequent grantmaking activity from the DAF is made without any cost or administrative burden for the grantee charities. This simplification frees up the donor to think about the causes they want to support rather than the burden of planning and execution.
The second reason that donors use DAFs for lifetime giving is that they can separate the timing of the tax-deductible gift and the timing of their charitable grantmaking. This allows donors to contribute more in higher income years, creating a ready reserve of charitable funds to use for years to come. This also gives donors time and flexibility to fully research their philanthropic strategy and ensure that their gifts are strategically aligned with their charitable giving goals.
Finally, DAFs make it easy for donors to contribute assets other than cash, such as appreciated securities, private equity, restricted stock, real estate, cryptocurrency, and more. This is often the most tax-efficient way to give, potentially reducing a donor’s overall income tax liability, minimizing capital gains tax, and providing a larger donation to charity. In short, DAFs allow the donor to give the right asset at the right time to maximize both their tax savings and their charitable impact.
This is a great benefit to charities, as well. While Fidelity Charitable has the in-house expertise to facilitate the donation of complex assets, many charities may struggle with accepting these contributions. Instead, charities that receive DAF grants can simply accept a check from the DAF sponsoring organization, avoiding fees to outside legal counsel, administrative work related to due diligence, or risk associated with directly accepting complex assets.
It’s easy to understand why more donors are choosing DAFs to facilitate their charitable giving. DAFs simplify philanthropy — allowing the donor to contribute a variety of assets easily, streamline their recordkeeping, and maximize the tax benefit of their charitable giving. And they can continue to support all of their favorite charities, spending less time thinking about how to give and more time thinking about their philanthropic strategy and the causes they care about.
Hibel: After the Tax Cuts and Jobs Act of 2017, how do you think donors might use a donor-advised fund differently?
Oommen: Tax reform overhauled the American tax code, but one important provision didn’t change: Taxpayers are still generally eligible for a federal tax deduction for their charitable giving. However, the standard deduction was nearly doubled, and most other itemized deductions were either eliminated or reduced. This could have a significant impact on charitable tax planning for many Americans.
For example, for a married couple filing jointly, the standard deduction is now $24,000. Itemized deductions would have to exceed this for them to claim a deduction for charitable giving. Let’s say they own their home with no mortgage, and their annual property taxes are $12,000. They usually give about $10,000 annually to a nonprofit. Their itemized deductions would total $20,000 (the new law caps the property tax deduction at $10,000). If these are the couple’s only deductions, it would make sense for them to take the higher $24,000 standard deduction.
However, donors in this situation may consider the “bunching” strategy. This is when a donor surpasses the itemization threshold by bundling together their tax deductions into a single year and then takes the standard deduction in interim years. If the above couple “bunched” their charitable deductions by making two years’ worth of contributions in one year, their itemized deductions of $30,000 would exceed the standard deduction by $6,000.
And if the donor places their charitable dollars into a DAF, they can maintain their steady cadence of support to the nonprofits of their choice. Effectively, the donor has leveraged the DAF to bifurcate the timing of their tax deduction with grant distribution. The donor is still able to claim a tax deduction and the charities still receive the same amount of support in the same timing to which they were accustomed.
We believe many taxpayers will take advantage of the unique structure of a DAF to carefully time their charitable contributions for maximum tax savings. The Tax Cuts and Jobs Act is going to change many donors’ approach to giving — taking many taxpayers from charitable giving to charitable planning.
Hibel: Once a donor gives funds to a donor-advised fund, how long does it take before it is granted out to charity?
Oommen: Our analysis shows that 88 cents out of every dollar donated to a Fidelity Charitable DAF has been granted within 10 years. Donors are actively using their accounts — in fact, there is an average of 9 grants per Giving Account, an increase of more than 50 percent compared to a decade ago. But even as they are giving actively, donors also have an eye on the long term. More than two-thirds of our donors have told us that they established their accounts as a way to support giving in retirement, for example. When their income is lower, they still want to be able to give at the same levels, so they are taking action to pre-fund a DAF while their income is higher — reducing their taxable income when it is most tax advantageous to do so.
Hibel: Some colleges and universities are sponsoring their own donor-advised funds. What is your best advice for donors in finding a donor-advised fund sponsor that best fits their needs?
Oommen: There are several types of DAF programs, including those offered by national sponsors like Fidelity Charitable, community foundations, and programs centered on a specific affinity group, like a college or university. Each type of DAF offers different advantages and limitations, so it is important to take a hard look at your specific needs and goals. A university-based DAF could connect you with other donors with the same allegiance. On the other hand, a national sponsoring organization can potentially give the most flexibility to donors in regard to the causes they can support and the successors they can name on their accounts. For donors who would like to support multiple charities or plan to pass on their DAF advisory privileges when they pass away, having a DAF associated with a specific affinity group may create unnecessary restrictions and keep the donor from accomplishing their giving goals.
Also, for any college or university considering establishing a DAF program, it is important to remember the substantial expense involved in running any charity. If any incremental additional fundraising they would receive through their DAF program does not exceed the cost, it would not be worth it. Institutions can still take advantage of the growth of DAFs by targeting strategic fundraising efforts at individuals who have DAF accounts already.
It is important to know that DAF sponsors, whether national sponsoring organizations or community foundations, are not seeking to hold on to assets. In fact, it is just the opposite. A DAF-sponsoring charity fulfills its grantmaking mission by actively encouraging donors to request grant distributions from their accounts.
Hibel: In 2017, Fidelity Charitable granted $4.5 billion to charities. Of the amount that went to educational organizations, how were institutions of higher education supported?
Oommen: Every year, donors leverage their DAFs to support a wide variety of projects and programs at institutions of higher education. The 140,000 grants that were sent to educational organizations in 2018 supported funding to advance the mission and priorities for a broad array of colleges and universities, from faculty and research, to athletics, to scholarships and fellowships, to annual program support and endowment support.
Hibel: In my opinion, despite its amazing popularity with donors, the donor-advised fund still remains somewhat “mysterious” to many professionals who work at nonprofits and results in a hesitancy to engage with donors about them. In your opinion, what are the essential elements that faculty and staff should know about engaging in conversations with their school’s supporters about donor-advised funds?
Oommen: Donors who use a DAF are strategic, active, and committed to their philanthropy, so they are valuable supporters and advocates for the causes they care about. It’s important to build strong, long-term relationships with these indispensable donors, who have set up these funds because of their strong commitment to giving. To start, be sure to promote how easy it is to make grant recommendations to your institution — and note how to direct their gifts to the specific fund or program they wish to support. And ask donors how they are using or intend to use their DAF and what their long-term plans are for it — do they have a specific area of funding in mind, for example? What would they like to accomplish with their giving?
It is important to separately track and keep record of the donors behind grants from DAFs, even if they are small grants. Donors who have set up and funded DAF accounts have put thought and strategic planning into giving, and there is a potential for more grants if you properly cultivate relationships with these donors. Also, it is an easier “ask” to request a donor with a funded DAF to make a grant recommendation because they have already cleared the charitable hurdle by irrevocably giving the money away for charitable purposes — they now just need to decide how much they would like to grant and to which charities.
For those donors who are actively supporting your school from their DAFs, consider asking them to name your school in their DAF account succession plan. This would trigger a distribution from the DAF to your organization after the donor’s death. This is an area of planned giving that most charities and estate planning attorneys miss entirely.
Finally, to reiterate, if you have a donor with stock or a privately held asset, like real estate or business interests, you may want to encourage them to think about giving it to a DAF and then making a grant. We facilitate those types of donations at no cost to either the nonprofit or the donor, and it can help the donor to give up to 20 percent more than if they sold the asset first and then donated the proceeds.
Hibel: Can colleges and universities follow up with donor-advised fund donors?
Oommen: One of the most common areas of confusion that we see from nonprofits is around stewardship. Most of our donors specifically elect to include their name and contact information when they recommend a grant so they can be acknowledged. However, sometimes the institution sends the thank you note to us or recognizes Fidelity Charitable in the class gift reunion flyer. Your college or university should make sure that the data managers and stewardship staff are appropriately flagging the recommending donors and sending any follow-ups to them, not to the DAF sponsor.
Hibel: What are the greatest professional rewards in working with advisors with charitably-minded clients?
Oommen: I get a great deal of professional satisfaction knowing that the resources that Fidelity Charitable delivers — through our DAF program, charitable planning educational resources, and general facilitation of charitable giving — really helps advisors provide impactful ways for their clients to put their charitable giving intent into action. As an example, Fidelity Charitable accepted nearly $1 billion in complex asset donations in 2017 over several hundred transactions. The tax savings from donating highly appreciated assets like this can serve to amplify the charitable intent of the donor. And the unparalleled risk management and due diligence experience of our complex assets team allows charities receiving grants from the DAF to simply put cash to work toward their mission — saving them from additional cost and risk. I am thrilled to help passionate donors make more of a difference in the world through my work with their professional advisors.
Beyond some of the complex transactions we handle, one of my favorite parts of my job is helping the average American simplify their charitable giving. There is tremendous impact in providing simplicity. Complexity is a hindrance to taking action. By leveraging technology, people, and processes to provide simple ways to donate the right assets at the right time, we allow people to give more and potentially to a wider variety of causes than they might have otherwise. I love what I do!
If you are interested in more tips and resources on donor-advised funds and maximizing giving, visit: