Giving Compass' Take:

• Ben Paynter reports that more donor-advised fund holders are starting to move their money into the charitable causes they are intended for. 

• How can donor-advised fund holders be encouraged to use their money for its intended purpose? 

• Read advice for donors about donor-advised funds

Let’s say you learned about an investment method that rewards people for putting money into an account that’s earmarked for future charitable use. Theoretically, it would allow contributors to let their donations appreciate as they figure out who they want to give them to. But it doesn’t have any rules about when or how much you actually have to give away. And it’s designed to accept noncash assets like stock, company shares, and real estate, which lets people avoid paying capital gains tax on them in the first place.

What would you call that exactly? Is it charitable innovation or a clever tax shelter?

For years, that’s been the big question surrounding donor-advised funds (DAFs). The Institute for Policy Studies warned in mid-2017 that only about 20% of what was being funneled into these accounts had flowed back out. As of 2018, the National Philanthropic Trust estimated that DAFS had accumulated $110 billion, all money earmarked for charity that charities weren’t getting.

Some people have been stockpiling funds for a while now, but the annual rate of money in to money out is starting to improve: The sector reportedly saw $29 billion in contributions in 2017 with $19 billion going back to cause groups. A new report form Schwab Charitable shows that one way to encourage this kind of behavior is to lower the barrier to who can participate. Schwab’s minimum DAF account balance is $5,000.

Read the full article about donor-advised funds by Ben Paynter at FastCompany.