“If you’re in the luckiest 1 percent of humanity, you owe it to the rest of humanity to think about the other 99 percent.”
Warren Buffett on philanthropy
What is a Donor-Advised Fund (DAF)?
Today, one of the most effective charitable planning tools available to investors is the Donor-Advised Fund (DAF).
A donor-advised fund is a charitable giving account established through a public charity. You make an irrevocable contribution, may qualify for an immediate tax deduction, and then recommend grants to qualified charities over time. The sponsoring organization retains legal control of the assets, while you retain advisory privileges regarding grants. It administers grants from your DAF account, does due diligence, and ensures they meet IRS criteria.
Think of it as creating your own charitable foundation.
>> Source: IRS: Donor-Advised Funds
A Donor-Advised Fund works much like an investment portfolio
Instead of making charitable gifts one at a time, a DAF allows you to separate when you receive a tax deduction from when charities receive grants.
The process is straightforward:
- Contribute cash or appreciated investments.
- Receive a charitable deduction (subject to applicable tax rules).
- Invest the charitable assets for potential tax-free growth.
- Recommend grants to charities whenever you’re ready.
Over time, your charitable capital can grow before it is distributed. That is exactly the power of compounding that Buffett has championed throughout his career.
See Build an Extraordinary Legacy Through Philanthropy https://pendragon-capital.com/build-an-extraordinary-legacy-through-philanthropy/
What are the Pendragon investment strategies for DAFs?
Pendragon recommends that a Donor-Advised Fund (DAF) have an investment allocation that reflects when the donor expects to make grants.
The biggest distinction from a retirement portfolio is that the relevant time horizon isn’t the donor’s life expectancy. It’s the charitable spending horizon. Major DAF sponsors explicitly structure their investment choices this way.
Approach
- Match the investment risk to the expected timing of charitable grants.
- Separate money intended for near-term giving from money intended to compound for future philanthropy.
- Use the allocation itself to reinforce the article’s idea of creating a personal “family foundation.”
Who should consider investing in a DAF?
Investors who itemize their deductions and are in significant tax brackets can benefit from charitable giving, especially if you have variable income and need more deductions in certain years than others. Or you may have a long-term belief in charitable giving and appreciate that once the money is allocated, it must be given.
Pendragon Works with DAFgiving360 from Schwab. Not only is the DAF easy to set up, it also integrates with other Schwab accounts.
- DAFgiving360 does not charge any penalties or extra fees to issue a grant.
- Note that you cannot have DAF funds returned to your personal bank account or brokerage account.
Who manages the account?
Ian Green is the portfolio manager for Pendragon’s investment strategies. He has been a registered investment advisor since 1997. Ian is a CPA and is a member of the AICPA Personal Financial Planning section. He holds a BS in accounting and economics from Marist College and an MBA in finance from Columbia University. Pendragon Capital Management, Inc. exercises discretionary authority over buying and selling securities in the account.
Ian has been personally involved in philanthropy as a Board Member of a charitable organization for over 5 years.
Ian Green
MBA (Finance) Columbia University
BS (Accounting/Economics) Marist College
CPA, New York
To learn more about Ian, read Ian Green Embraces Individualized Expert Financial Advice
What are the fees associated with establishing a Donor-Advised Fund?
For actively managed donor-advised funds over $100K, Pendragon Capital Management, Inc. charges an annual management fee, paid quarterly based on the quarter-end account value.
DAFgiving360 offers competitive administrative fees that cover the expenses of operating a donor-advised fund (DAF) account, such as online donor services, phone support, grant due diligence and administration, tax filings, annual account summaries, and communications.
What are the risks associated with investing in DAFs?
All investing involves risk. Investors can lose all or part of their principal. The overall market is volatile.
Past performance does not indicate future returns.
Is there a minimum investment to open a DAFgiving360 fund?
A core account can be established with no minimum initial contribution. Donors may contribute cash, securities, or other non-cash assets and recommend investing the charitable assets in any of the index or actively managed pre-approved investment pools.
A professionally managed account allows investors with $100,000 or more to recommend an investment advisor to manage the investments. The investment advisor is subject to DAFgiving360’s approval and must enter into an Investment Advisory Agreement with DAFgiving360™.
What are the applicable safeguards?
While there is no protection against market losses for DAF funds, Pendragon uses Charles Schwab & Co., a nationally recognized custodian, to hold all client assets and send trade confirmations and monthly statements to clients. Please see SIPC protections on the SIPC website (www.sipc.org).
In addition, Charles Schwab carries private insurance for a certain amount above the SIPC limits to protect against fraud or bankruptcy.
>> See Charles Schwab: https://www.schwab.com/legal/account-protection
How do I open a Donor Advised Fund?
Please contact Ian Green at 917-837-2287 or ian@pendragon-capital.com to obtain the appropriate new account forms for setting up a DAFgiving360 fund with Schwab. For more information, contact us.