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Exploring Donor-Advised Funds: Insights from Tony M. Oommen at Fidelity Charitable

In an enlightening discussion this month, Andrew Hibel interviewed Tony M. Oommen, a vice president and charitable planning consultant at Fidelity Charitable. They delved into the dynamics of donor-advised funds (DAFs), the role of Fidelity Charitable, and the opportunities for colleges and universities when engaging with donors and DAFs.

Understanding Fidelity Charitable

Andrew Hibel, HigherEdJobs: Can you provide a brief overview of Fidelity Charitable and explain your role?

Tony M. Oommen, CFP, vice president, charitable planning consultant, Fidelity Charitable: Fidelity Charitable operates as an independent public charity, enabling donors to contribute to over 255,000 nonprofit organizations with more than $30 billion in grants delivered since its inception in 1991. The organization pioneered the national donor-advised fund program, aiming to enhance the tradition of philanthropy in America through accessible and effective charitable giving. My position involves supporting professional advisors across a four-state region, maintaining connections with attorneys, accountants, and wealth advisors while providing guidance on strategic charitable planning and emerging philanthropic trends.

What are Donor-Advised Funds?

Hibel: How would you define a donor-advised fund?

Oommen: A donor-advised fund is essentially a charitable investment account sponsored by a 501(c)(3) public charity. It allows donors to make contributions and receive an immediate tax deduction while recommending grants to specific charities over time. When a donor contributes to a DAF, the funds are managed by the sponsoring organization, which oversees the legal aspects of the donations while allowing the donor to recommend grant distributions and investment choices based on their preferences.

The Appeal of DAFs

Hibel: What motivates donors to utilize donor-advised funds?

Oommen: DAFs have become the most rapidly growing vehicle for charitable giving in the U.S., with a remarkable increase in accounts. Donors choose DAFs for several reasons: first, they streamline the giving process with centralized administration; second, they enable donors to separate the timing of their tax-deductible contributions from actual grant disbursements, allowing them to take advantage of tax benefits more strategically; and third, they facilitate donations of a variety of non-cash assets, optimizing the tax implications of charitable giving. This flexibility not only benefits donors but also charities, which can receive direct cash grants from DAFs without the complexities of accepting diverse asset types.

Impact of Tax Reform on Charitable Giving

Hibel: In light of the Tax Cuts and Jobs Act of 2017, how might the approach to donor-advised funds change?

Oommen: The tax reform altered the landscape significantly, notably by almost doubling the standard deduction while curbing other itemized deductions. Many taxpayers may find it more beneficial to opt for the standard deduction rather than itemizing their deductions, potentially diminishing their incentive for charitable giving. However, a strategy known as “bunching” — where donors consolidate their contributions into a single year — allows them to exceed the itemization threshold in that year and utilize a DAF to remain committed to their charitable goals over time. This approach can lead to enhanced tax savings while still enabling consistent support to preferred charities.

Timing and Usage of Funds

Hibel: What is the grant distribution timeline for donor-advised funds?

Oommen: Research indicates that 88% of the funds contributed to Fidelity Charitable DAFs are granted out within a decade. Donors remain engaged, with an average of nine grants per account, reflecting a significant increase in activity over the past ten years. Additionally, many donors establish DAFs with the intent of supporting charitable causes during their retirement years, allowing them to manage their philanthropic goals in tandem with their financial situation.

Choosing the Right DAF Sponsor

Hibel: Some institutions are establishing their own donor-advised funds. What guidance would you provide to donors selecting a DAF sponsor?

Oommen: Different DAF options are available, including those from national organizations, community foundations, or institutions aligned with specific interest groups like colleges. Each offers distinct benefits, so donors need to assess their personal objectives carefully. National sponsors typically afford broader flexibility, while institution-led programs may foster community collaboration but could introduce operational constraints that hinder donors from fulfilling their giving ambitions. Institutions must also weigh the financial implications of running a DAF program against potential fundraising outcomes.

Supporting Higher Education

Hibel: In 2017, Fidelity Charitable contributed $4.5 billion to various charities. How did these funds specifically impact higher education?

Oommen: Each year, donors leverage their DAFs for a wide spectrum of support across higher education, funding approximately 140,000 grants aimed at advancing a variety of initiatives within colleges and universities. Contributions range from faculty research and athletics to scholarships and general program support, showcasing the versatile impact of DAF contributions on educational institutions.

Engaging with Donor-Advised Fund Donors

Hibel: There appears to be some uncertainty about engaging with DAF donors. What should educational professionals know about these interactions?

Oommen: DAF donors are generally proactive and strategic in their philanthropy. Establishing strong relationships with them is crucial. Institutions should communicate how easily donors can recommend grants and target specific projects they want to support. It’s beneficial to understand the donors’ objectives and long-term plans for their funds to foster a deeper engagement. Even small grants warrant recognition, as establishing a connection can lead to increased future support. Encouraging donors to include the school in their DAF succession plans can also unlock potential future donations.

Final Thoughts

Hibel: Can colleges and universities proactively engage with DAF donors post-contribution?

Oommen: Effective stewardship is key. Often, donors wish for direct acknowledgment, yet institutions mistakenly send thanks to the DAF sponsor instead. Properly tracking these donors and sending personalized follow-ups ensures that recognition is delivered to the appropriate parties.

Hibel: What are the most rewarding aspects of working with advisors who focus on charitable clients?

Oommen: I find great fulfillment in enabling impactful charitable giving through simplified processes and strategic planning for clients. Our efforts at Fidelity Charitable help advisors facilitate their clients’ philanthropic goals while streamlining donation complexities. It’s gratifying to witness the difference our services make in driving donations to various causes, and I am passionate about making charitable giving more accessible for everyone.

For those interested in further exploring donor-advised funds and enhancing their philanthropic efforts, resources abound for maximizing this unique form of charitable giving.

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