'Tis the season for giving, and charities are ramping up their appeals with mailers, email appeals and more. The challenge for donors is finding the most effective way to give.
One of the hottest methods for giving right now is through donor-advised funds, funds that donors create by depositing cash, appreciated securities or other assets, and then distributing the money to charities over time. Contributions to donor-advised funds grew 23.5 percent, or $17.3 billion, in 2013, bringing their assets to $53.7 billion, according to the National Philanthropic Trust. That growth handily outpaced all other giving vehicles, like private foundations and charitable trusts, as well as the 4.4 percent growth in overall giving. Contributions to donor-advised funds now represent 7 percent of all individual charitable donations.
One reason for their appeal: Individuals can take an immediate tax deduction against the full amount they contribute to a donor-advised fund, but there are no rules or regulations about how quickly the money actually has to be distributed. "Why wouldn't a donor like donor-advised funds? They're the best thing in the world for donors," said Ray D. Madoff, a professor at Boston College Law School and an expert on trusts and estates.
But the rapid growth in contributions to donor-advised funds has not been matched by grants to charities from those funds. At $9.66 billion, grants increased 12.6 percent — hardly shabby, but only slightly more than half the growth rate of the contributions coming into donor-advised funds.
"That's the part the charities find difficult, the fact that there is no payout requirement," said Stacy Palmer, editor of The Chronicle of Philanthropy.