135 Donor Advised Funds with Eileen Heisman

Jason interviews Eileen Heisman, CEO of National Philanthropic Trust.

Eileen is a 30 year charitable giving and planning expert, and is the CEO of National Philanthropic Trust, the largest independent donor advised fund administrator. She has been named to the Non Profit Time’s Power & Influence list multiple times and is a lecturer at University of Pennsylvania.

Founded in 1996, NPT is the largest, independent Donor-Advised Fund sponsor and has raised $7.6 billion in charitable contributions. Based in the metro Philadelphia area NPT currently manages $4.2 billion in charitable assets and has made more than 160,000 grants totaling $3.9 billion to charities around the world.

To learn more please visit: NPTrust.org

Below is the full transcript:

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Announcer: Welcome back, America, to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence and freedom as you prepare for and transition through retirement. Now, here is your host, Jason Parker.

Jason: America, welcome back to another round of Sound Retirement Radio. You’re listening to episode 135. I just want to remind our listeners that are driving down the road in Seattle this morning, if you aren’t able to catch the entire program on the radio, remember we archive all these programs for your listening enjoyment at SoundRetirementRadio.com. You can also subscribe as a podcast. As you know, we like to get the morning started right. We do that two ways. The first is by sharing a verse. I’ve got a verse here for you. This comes to us from Numbers 6:24-26. “The Lord bless you and keep you. The Lord make his face shine on you and be gracious to you. The Lord turn his face toward you and give you peace.”

 Then of course, if you’re going to go visit your grandkids this afternoon or this weekend, we want to give you a joke that you can share with them. Something to put on their face. It’s my good fortune, summer break has started. I got to bring my kids into the studio with me this morning. I have my daughter Libby here, who’s going to share our morning joke. Libby, take it away.

Libby: Why did the picture go to jail?

Jason: I don’t know, why?

Libby: Because it was framed.

Jason: Good job, Libby. Come over here. Tell me real quick, what do you think about these jokes that your dad brings home?

Libby: I think they’re kind of funny.

Jason: Okay, thanks. All right, folks. You’re listening to episode 135. It is my good fortune to bring Eileen Heisman onto the program. She’s the CEO of National Philanthropic Trust, the largest independent donor advised funds sponsor. Eileen, welcome to Sound Retirement Radio.

Eileen: Thanks Jason for having me. I’m glad to be here.

Jason: Absolutely. Thank you for being a guest. Before the show started, we had a moment to talk. You mentioned your last name, Heisman, that the Heisman trophy, there’s actually a family connection there. You want to share that, just real quick?

Eileen: Sure. The coach’s name was John Heisman. My grandfather’s name was Charles Heisman. They were cousins. I think they were first cousins. My grandmother met the coach many times when she was alive. My grandfather died at a very young age. He was apparently a pretty tough guy, but a real renaissance man. He invested in real estate. He was a part-time Shakespearean actor. He was a lawyer. [inaudible 00:02:38]. He also did something in football that they said was against the rules or law after a while. He suggested that the person running the ball down the field put the ball underneath his shirt. They said, “You can’t do that.” I think his biggest claim to fame, aside from having the trophy named after him, is the highest scoring college game. Georgia Tech versus Cumberland Valley, I think 212 to 6, which is a touchdown every six seconds, was one of the things he continues to be known for.

Jason: Wow. That’s so cool. We appreciate you being a guest on Sound Retirement Radio. I’m really looking forward to digging into the subject of donor advised funds and learning more about them and why they’re important, and how people are using them. Can we start with just the fundamentals, the foundation? What is a donor advised fund?

Eileen: Sure. A donor advised fund is a charitable savings account. It has to be housed inside a charity. Donors open them. They name them. Then they put something in them. It’s usually appreciated securities or cash. Then from the donor advised fund, they make grants. It’s called advised because the donor can advise on two parts of the fund, how it gets invested while it’s sitting there, and also the grants that are going out.

Jason: Now, if people weren’t going to use this type of a vehicle for giving, or would they use this type of vehicle for giving in lieu of something like going out and setting up a special charitable trust of some sort?

Eileen: Most people want to use the donor advised fund when they want to be a grant-maker in their lifetime. You might set it up, rather than setting up a private foundation. A lot of charitable trusts, the donor doesn’t actually get to give the money away until they die. They give it away at death because they get income while they’re in their lifetime. A donor advised fund is a lifetime grant-making vehicle. People like them. They’re the fastest growing form of philanthropy in the United States right now because they’re very easy to use. If you’re used to banking online, you’re then very good at getting accustomed to what you can do online with a donor advised fund, which is you can make grant recommendations. You can reallocate your investments or suggest that you do. A lot of donor advised fund work is actually web-based now. People love the ease of them because they’re very easy to use.

Jason: Wow, that’s interesting. I was speaking with a gentleman recently. One of the things that was important to him is he wanted to create a private foundation. What would be the advantage of using a donor advised fund versus creating a private foundation for your giving?

Eileen: Well there’s two really immediate advantages. One is it doesn’t cost anything to open a donor advised fund. It costs you nothing. There are no transactional account opening fees. If you want to start a private foundation, you have to usually pay a lawyer or a paralegal to help you do all the paperwork. You have to apply to the IRS for a tax ID number. Then you have to open up an account. All the work you have to do on your own. You’d have to go to a bank or get a bank to help you open it up. You’d probably need legal help. You would need banking help. Then you’d have to have a lot of maintenance for that as it goes on. You’d have to file tax filings every year. You have to make sure the grantees are cashing your checks.

 In parallel, if you open a donor advised fund, it doesn’t cost anything. You can open it up in a day. You can put an asset in it and you can be ready to make your grants in three or four days after you open it up. The ease of doing this really takes away a lot of the administrative burden of a private foundation and you can be up and running within a week. You can be fully operational in your donor advised fund and at no cost. That’s really attractive to a lot of people.

Jason: At what level of assets, or level of giving, should somebody even consider a donor advised fund? How much money should they be prepared to use to open up one of these accounts? Is there a minimum that they should be thinking about?

Eileen: It depends on the sponsoring charity that you want to use to house your donor advised fund. If you’re going to start one, you have to then look around for the charities that sponsor donor advised funds and decide which ones are the best match for you as a donor. If you don’t have a lot of money and your barrier to entry might be money, the lowest … Usually entry points for donor advised funds are $5000. If you have $5000 you can part with and you want a donor advised fund, there’s a couple of national charities that actually will allow you to do it for $5000.

 If you look at those charities and decide they’re not for you, you want to see what the other options are, a lot of the minimums are around $25000. Some are as high as 50. You’re looking at those thresholds as where you need to be if you want to start a donor advised fund. For most people who are in retirement age, if you have accumulated money in your 401(k) and your investments have done well, between $5000 and $25000 are affordable for a lot of Americans.

Jason: Yeah. A lot of times I think, for example, the gentleman I was sharing with earlier. His estate was several million dollars. Oftentimes I feel like people think of a private foundation as these people that are higher net worth people that are looking to give. That’s not always the case. As little as $5000, you can set up a donor advised fund. That’s really fascinating. What are the limitations on who you can give money to? You had shared with me that there was … You could direct a portion of the donor advised funds. I think you said the investments and who the money was being given to. Is that correct?

Eileen: Right. We don’t use the word direct. We use the word advise. The donor can ask the charity to make grants to their alma mater, their place of worship, the local hospital, the soup kitchen around the corner, the American Red Cross. You can suggest to the sponsoring charity, “I’d like, out of my donor advised fund, to make a grant of $500 to the Red Cross.” Perhaps for a local tragedy or a national tragedy that you’ve seen on TV recently. Then they make sure that the charity, that they have the right address and the right contact information. That it’s truly a charity. With the Red Cross, you don’t have to worry about that. Then a grant gets cut, or a check gets, or something gets wired. It depends on how the charity works. It’s pretty straightforward.

 There’s a couple times in which they might ask you a couple of questions if you made a request to give a grant to a university. If it looks like it might be the same amount as tuition, they might check to make sure that you are not paying your child’s or grandchild’s tuition with a donor advised fund. There can’t be any private benefit to you or members of your family. If it’s an auction, you can’t pay for an auction item. You can’t pay for a golf outing. If the donor’s getting any benefit back, or a gala, you can’t use your donor advised fund money for that purpose. But if you want to make an unrestricted grant to your university or something like that, all those grant suggestions get approved. It’s just knowing the rules. The same rules apply to your private foundation of not being able to get private benefit for those either.

Jason: This is a very interesting topic. Folks, if you’re just tuning in, you’re listening to episode 135. I have Eileen Heisman on the program. She’s the CEO of the National Philanthropic Trust, the largest independent donor advised fund sponsor. We’re talking about donor advised funds. As a way to give, in lieu of something like creating a private foundation.

 Eileen, I wanted to ask you, well a couple things. First of all, I know you have a couple of websites you have shared with me. Go ahead and tell our listeners about some of the resources that are available for them if they’d like to learn more about this.

Eileen: Sure. Our website is, our name is National Philanthropic Trust. The website is NPTrust.org. N as in Nancy. P as in Paul. Trust.org. There you can get a lot of information about donor advised funds. We have a lot of articles. There’s a lot of articles from not just industry publications, but also Forbes, The Wall Street Journal. They’ve been written about a lot. There’s a lot to learn if you’re interested in learning more about DAFs, which is what we call them inside the industry. Then we have a donor advised fund report. It’s a mini micro site on our website, which means it’s a standalone website embedded into ours. You can actually look at the donor advised fund report to see the growth of donor advised funds over the last almost 20 years. You can just see how much more popular they’ve become. If you start wondering why and how you’ve been hearing about them, or you can just see they’ve increased in popularity immensely.

 Then we have another website that’s much more general, also a micro site, called the History of Giving. If you’re interested in the last 500 years of philanthropy around the country and the world, I really suggest you go to the History of Giving website. It really talks about philanthropic acts that have taken place all over the world in different cultures and different countries and different times that actually embrace how much fellow mankind respects and wants to take care of each other.

 In the era that we’re in now, where you might not feel that way, it’s a really heartwarming collection of data that we’ve put together, just to talk about the history of giving and the history of philanthropy.

Jason: All right. That’s the HistoryOfGiving.com and NPTrust.org. Is that right?

Eileen: That’s correct.

Jason: Any tax benefits for people that make these, now do we call them donations? What’s the proper terminology for when you fund one of these accounts?

Eileen: They’re charitable gifts. You get the same tax benefit as if you give to the local hospital or university. The charities that sponsor donor advised funds are public charities. You get the full tax benefit that you would get if you gave to a local charity or a national charity that was also a public charity. If you give appreciated property, and a lot of people actually give things that are not just appreciated stock or cash, but they can give a part of a family owned business. Sometimes there’s partnerships we can take. We can take real estate. We’ve taken coin collections. You get the full fair market value of the deduction because we’re a public charity.

 If you think you might have an asset that you don’t want anymore, you could consider gifting it to a donor advised fund. You actually give it to the donor advised fund in kind. We take the asset and then we go to the marketplace and we sell it. If we can’t sell it right away, we wait until we can get a reasonable price. Then an asset that has been illiquid then becomes a liquid asset form which you can make grants. Donors come to us with all different interesting assets, aside from appreciated securities. That say, “Is this an appropriate asset that you can use to start your donor advised fund?” It can be interesting work because people sit on all different kinds of assets. A lot of them they don’t need anymore. As they get older, their retirement age is coming, they don’t need it. A lot of our donors who come to us will introduce an asset that they might not think of being used for charity, but actually can be quite useful because there’s a marketplace for it.

Jason: What happens when the person who made the gift initially, passes away and dies? How does the administration of that fund continue on?

Eileen: While the donor is alive, they usually make a choice that they either want to pass the donor advised fund on to their kids or grandkids when they pass, or they want to spend it down during their lifetime. Donors often will decide that when they set it up. That will determine how quickly they make grants out. If a donor wants to spend it down in his or her lifetime, they have a more aggressive grant-making strategy while they’re alive. If they decide they do want to pass it on to their kids or grandkids, they might only pay out 5%. They create a spending rule. They pay out 5%. What’s left can go directly to the family members in two ways. It can be divided up. If you have three grandchildren, and you think each of them would like to have their own donor advised fund, you can divide it into thirds and leave it that way. Or you can leave it intact completely and have the three grandchildren advise it as a group.

 Depending on what kind of a family you have, where they live, if they get along or not, you have the choice to either divide it up or leave it intact, depending upon what you think is best for the next generation.

Jason: But it’s not money that’s available for the grandkids to spend. It’s money that’s available for them to direct on who’s going to receive gifts from the fund. Is that correct?

Eileen: That’s exactly right. What they get a chance to do is be the advisors. They can actually advise on grants and investments. They can’t take the money back for their own personal use, but they can use it to make grants to causes or organizations that are important to them. Sometimes they can be following the family traditions of granting to things that their parents and grandparents granted to, but in a lot of cases, they’ll change interests and grant to things that they’re personally interested in.

Jason: From your experience, what have been some of the biggest downsides to the donor advised fund?

Eileen: One of the things that a donor advised fund can’t do is employ family members. When families start a private foundation, if they have somebody in the family that they think might want to work in philanthropy, sometimes what they do is they hire them. The foundation actually hires them. They have to pay them market level rates for whatever work that they’re doing. You can’t do that in a donor advised fund. If you think that you want to have a family member work in this world of philanthropy, having a donor advised fund is not a good match for getting them a job.

 The other thing about a donor advised fund is that the donors cannot pay themselves to go to educational programs or to travel. If you want to make site visits to organizations that you’re supporting, you can’t pay for any visits or things like that. If you have a private foundation, you could do that. Or educational programs around philanthropy. We can’t pay for what it costs to go to conferences. Aside from those two things, donor advised funds offer donors a lot of flexibility and even anonymity. If a donor wants to give an anonymous grant from the donor advised fund, any one of the grants the donor recommends can be anonymous. If there’s a big capital campaign in your hometown and you don’t want anybody to know that you’re the donor, if you have a donor advised fund, you can ask the sponsoring charity to not have your name be identified on the grant check or on the grant letter. For some people who’d rather do their philanthropy very quietly, the option to be anonymous in a donor advised fund is really terrific.

 There’s no way you can be anonymous in a private foundation because in a private foundation your tax filing goes out and it identifies you as the donor, and then all the grants that you’ve made. The anonymity piece is often a piece that people really enjoy.

Jason: What about fees associated with donor advised funds? What does that look like?

Eileen: That’s a great question. There’s usually two sets of fees. One of the fees is to the charity itself who sponsors them. Most of the fees, and it depends on the sponsoring charity. There’s over a thousand in the country that sponsor it, so they’re not all the same. They’re often around 100 basis points, or 1% or even less. You can see 85 basis points, which is slightly less than 1%. If the donor advised fund is large, 10 million dollars, and they can get that large, you might see a blended fee that could go down to even 30 basis points. Most of the fees for the charity are under 1%.

 Then there’s an investment management fee. It depends on, if you’re invested in ETFs, it will be a very small amount. If you’re invested in a separately managed account, it might be a larger amount. It depends a lot on whatever your donor advised fund assets are invested in. Usually all in, it’s around 2%, or a little bit less than 2%. Then there could be a third fee. If you’re doing your donor advised fund through a financial service company sponsored charity, sometimes the financial advisor for the opportunity to advise on the investment side, will charge a small fee. In some of the donor advised funds, there will be an investment advisor fee. The first two fees are always the case. The investment advisor fee doesn’t always apply. It depends on the program.

Jason: Okay. If somebody was coming to you and saying, “You know, I’m thinking about setting up one of these donor advised funds.” What’s the most important thing that they should look for when evaluating their different options?

Eileen: One of them is to make sure that you pick a sponsoring charity that’s consistent with who you are as the donor. Some of the sponsors are religiously focused. There’s the National Christian Foundation. There’s Jewish Federations. There’s the Catholic Community Foundation. If you are motivated for religious reasons, you might want to house your donor advised fund in something that is closely aligned with who you are. They also might have rules, which is a portion of the grants might need to go to religious charities of that same religion. You have to make sure you’re comfortable with whatever those guidelines are.

 Another thing you need to be comfortable with when you’re looking for a sponsoring charity is if you want to pass it on to your children or grandchildren to advise, not all sponsoring charities permit that. You have to make sure, if legacy planning is your most important part, how many generations can advise, if any. You should look for that. You should look for fees. There is a variation in fees. You should make sure you’re comfortable with the fees. You might want to look at online functionality to make sure that you can do things online. Not all donor advised funds have equal online functionality. If you’re somebody that likes to work on your phone, you should just make sure that they have an app that’s compatible.

Jason: Do you have any-

Eileen: Then investment options.

Jason: Oh, I’m sorry.

Eileen: Some donor advised funds have a lot of investment options. Some have very limited. If you’re somebody that really likes to look at investments and how they work, you might want to consider a charity that has more investment opportunities.

Jason: Do you have any examples, maybe not, I’m sure there’s privacy issues here, but examples of people that are using these types of tools? How they’re oftentimes being used for giving?

Eileen: Sure. We had a family that was a blended family, in that there was, the husband had been married before. He had older kids and younger kids. With the younger kids, they got together every Thanksgiving. Each of the children had a sponsor in the family. In one case it was an aunt. Another case it was an older cousin. Each of the sponsors helped them figure out where they were going to give money away. The dad, who was a really interesting guy, retired and had sold his business and had done very well, was very comfortable. He decided he wanted his younger children to be really connected to philanthropy at a young age, so he gave them $100 for every year they were alive.

 When I first met the family, the daughter was nine. She was giving away $900 a year. Her aunt was helping her through the vetting process. They felt like the parents were too close to them, but it would be good if they had somebody as a guidepost. Then the young man was 12, and he had $1200 the year I met. He had an older cousin who was helping him look at charities of things they were interested in. The son was giving a lot to animal charities and the environment. The daughter, who was younger, was giving a lot to homeless children. Was interested in coats and interested in shelters, kids that were being forced to live in shelters. She was being guided by her aunt.

 For his older kids from his first marriage, he actually gave the children up to $25000 a year to give away. One of them was in medical school. Another one was in graduate school. They were completely independent or on their own. Here was a gentleman who had been married twice, had two sets of kids, and he was, depending on their age, had afforded them the opportunity to get involved in philanthropy really early. He really wanted them to use the donor advised fund as a learning tool. I think he did a great job.

Jason: Eileen, thank you for being a guest here on Sound Retirement Radio. Folks, if you’re just tuning in, again it’s episode 135. We archive all of these programs for you online. You can learn more about Eileen Heisman and the work that they’re doing over at NPTrust.org. The other website that she shared with TheHistoryOfGiving.com. Eileen, thank you for being a guest on Sound Retirement Radio.

Eileen: Thank you for having me, Jason. It’s a pleasure.

Jason: It was a pleasure. It was really fun getting to learn about this topic. Folks, I hope you found this helpful. I’d love to see your comments on Sound Retirement Planning. Until next week, this is Jason Parker signing out.

Announcer: Information and opinions expressed here are believed to be accurate and complete. For general information only, it should not be construed as specific tax, legal, or financial advice for any individual, and does not constitute a solicitation for any securities or insurance products. Please consult with your financial professional before taking action on anything discussed in this program. Parker Financial, it’s representatives, or its affiliates have no liability for investment decisions or other actions taken or made by you, based on the information provided in this program. All insurance related discussions are subject to the claims paying ability of the company. Investing involves risk.

 Jason Parker is the president of Parker Financial, an independent fee-based wealth management firm, located at 9057 Washington Avenue Northwest, Silverdale, Washington. For additional information, call 1-(800) 514-5046 or visit us online at SoundRetirementPlanning.com.

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