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All of them have used donor-advised funds (DAFs) in short. DAFs are popular in the United States, with over US$140 billion sitting in these accounts. In Asia, DAFs are relatively new with only Singapore, China, South Korea and Japan setting them up.

What exactly is it? In a DAF, the donor transfers money or other assets to another entity called the sponsoring organisation. While the sponsor legally owns the assets, the donor is given a huge say in determining when the fund is disbursed and causes to support, hence the name “donor-advised funds”. Typically, the sponsoring organisation will provide advisory services to the donor on how to effectively utilise the funds.

At this juncture, a reader may ask what is the difference between a DAF and an organisation like the Community Chest in Singapore, which raises funds for multiple charities?

The major distinction is the role of the donor in the DAF, as compared to the donor making an outright contribution to charity. In a DAF, the donor is an active participant, working in collaboration with the sponsoring organisation, in disbursing funds.

Let us say, we have a philanthropist who wants to make a S$1 million contribution to educational causes. While S$1 million is certainly a lot of money, it is insufficient to set up a private foundation due to the administrative costs involved. A donor who uses a DAF may direct the funds to support worthwhile causes in education, while being properly advised.

In many cases, the donor is a wealthy person who may not be familiar with what is happening on the ground. Therefore, the sponsoring organisation adds value by providing advisory services.

In this example, the sponsoring organisation may, after doing due diligence, recommend that the donor disburse funds to underfunded causes like pre-school, technical and special-needs education.

DAFs can also function as an emergency fund for a “rainy day”. For instance, there could be an emergency societal need like children living under Covid-19 lockdown conditions, who are now deprived of sponsored school lunches. Money from DAFs could then be channelled to fund food vouchers for their families during home-based learning.

In fact, this was the cause championed by The Recess@Home programme spearheaded by the Community Foundation of Singapore, a DAF.

BENEFITS OF DONOR-ADVISED FUNDS

A DAF is attractive to donors because of the many benefits it offers.

First, the DAF gives the donor a greater role in the philanthropic process. This sense of satisfaction that the donors get may encourage them to give more to charities in future and set up a private foundation. In fact, in setting up the first DAF in Singapore in 2008, then Minister for Community Development, Youth and Sports, Vivian Balakrishnan, described it as a “starter kit for foundations”.

Second, the donor is supported by DAF sponsors, who are intimately aware of the needs of the community. Therefore, the funds can support the causes that are desperately in need.

Third, the DAF, if properly used, may achieve maximum impact by making contributions to underfunded areas. Fourth, the donation to a DAF need not be a cash gift, but may take the form of company shares or other non-cash assets. Finally, some countries provide requisite tax breaks to donations to DAFs.

The biggest advantage of the DAF is democratisation of philanthropy from the ultra-high net worth families to individuals who have a modest sum to donate. A heart-warming example is the story of the late Kim Gun-Ja, who set up a fund with the Beautiful Foundation, a South Korean DAF. Ms Kim, a sex slave under Japanese rule, donated all her assets save for funeral costs to set up the Grandmother Kim Gun-Ja Fund to support college tuition for orphans. In Singapore, a DAF may be set up with a minimum sum of S$200,000.

Recently, DAFs have come under trenchant criticism in the United States; some quarters have called it a form of “zombie” philanthropy. The main critique is that donors enjoy tax breaks while disbursing too little to charities. Some have called for a law that mandates the DAF to pay out a certain percentage annually. While this criticism of DAFs is legitimate in the United States, it may not apply to DAFs in Asia, where tax breaks are not the primary motivations behind philanthropic giving.

DAFS IN SINGAPORE

There is anecdotal evidence, at least in Singapore, that the level of disbursements to charities is quite high. For example, the two DAFs in Singapore, the Community Foundation of Singapore and SymAsia Foundation Limited, show a high payout rate to charities. The Community Foundation of Singapore has collected S$192 million and disbursed S$114 million in grants. SymAsia Foundation Limited stated in its 2020 annual report that it collected S$170 million and disbursed S$120 million. In fact, donors are conscious that they ought to disburse more to charities.

RISING PAYOUTS DURING THE PANDEMIC

There is currently a campaign in the United States called #HalfMyDAF, where donors are committing to granting half of the money sitting in their DAFs to charities. During this pandemic, there are reports in the United States that payouts from DAFs to charities have indeed been higher, even as critics push for the payouts to be even more accelerated. In contrast to the cautious and structured giving inherent in DAFs, there is McKenzie Scott, ex-wife of Jeff Bezos, who upended the philanthropic world by donating US$6 billion in 2020.

With proper governance, DAFs yield a net-positive over the Asian philanthropic space, compared to an informal channel of giving that relies on one’s family and business contacts. A DAF provides a structured and cost-efficient vehicle that democratises philanthropy and identifies societal needs that are underfunded. It is hoped that there would be more properly governed Asian DAFs set up, with high payout rates to charities to tackle difficult domestic and pressing transnational problems of our time, like climate change.

To find out about donor-advised funds, read more about it here.

This article is written by Professor Tang Hang Wu, CFS Board Committee Member and a professor of Law at the Yong Pung How School of Law, Singapore Management University.

This translated article was originally published by The Business Times.  

Credit: The Business Times © Singapore Press Holdings Limited. Permission required for reproduction.  

The Lew Foundation was the 16th-largest philanthropic foundation here, giving out $2.8 million in donations in 2019, according to a recent report on the largest foundations here. Mr Lew, who has four children, built his wealth from a range of businesses, such as Soon Huat Goldsmith and pawnshop chain Shing Heng Group. The foundation’s main focus is to help the vulnerable elderly and young people, and it does so through supporting healthcare and social services serving these two groups. For example, it is supporting about five nursing homes, fulfilling Mr Lew’s late mother’s wish of setting up a nursing home.

The Lew Foundation is one of the newer foundations listed in a recent report by Soristic Impact Collective, a consultancy, that shed light on the largest philanthropic foundations here in terms of expenditure. The research found that foundations set up by some of Singapore’s richest men are among the top 10 biggest givers out of the 91 foundations here. The Lee Foundation, founded by the late rubber tycoon Lee Kong Chian in 1952, topped the list, disbursing $52 million in donations in its latest financial year. 

In total, the 91 foundations spent over $264 million in their latest financial year to support a variety of causes, from education and healthcare to people with disabilities and environmental causes. And beyond the big bucks the foundations are giving away, what is noteworthy is that about 40 per cent of the 91 foundations were registered as a charity since 2011, a Straits Times check found.

Soristic’s principal consultant Pauline Tan said the growing number of the very wealthy here and a growing interest in philanthropy are driving the rise in the number of foundations set up in the past decade. There is also a growing ecosystem to support philanthropy, she said.

This includes the Asia Philanthropy Circle, a platform for Asian philanthropists to collaborate and address social problems, and The Majurity Trust, which provides philanthropic advice and grants.

Among those registered as charities in the past decade are corporate foundations, such as Keppel Group’s Keppel Care Foundation and Changi Airport Group’s Changi Foundation. The Keppel Care Foundation was ranked 13th on the Soristic report, while Changi Foundation took the 20th spot.

Then, there are individuals who made good in life who set up foundations in the past decade.

They include the Chua Foundation (29th) and the TL Whang Foundation (57th). Property magnate Chua Thian Poh, founder of Ho Bee Group, and his siblings set up the Chua Foundation in 2015. The TL Whang Foundation, registered as a charity in 2019, was started with donations by Mr Whang Tar Liang and his family. He is the younger of two brothers who built up Lam Soon Group, known for its consumer goods such as the Knife brand cooking oil.

How philanthropy is practised here has changed, with more foundations and donors looking beyond giving out cheques to seeking to create a real impact or bring about social change. Many of them are a lot more invested in the projects they fund, from being involved in the design of the programme to measuring its impact, said those interviewed.

The Community Foundation of Singapore (CFS) chief executive Catherine Loh said: “Donors are becoming more focused on strategic philanthropy, as opposed to outright charity. They see their donations as social investments that will bring about social change.”

“As such, they are more willing to provide longer-term support and willing to give a longer time horizon to allow change to occur.”

CFS enables donors who pledge at least $200,000 to set up a donor-advised fund. It manages the money, advises donors on the needs in the community and disburses the funds according to their wishes.

At the Quantedge Foundation, set up in 2015, its three full-time staff engage its community partners and beneficiaries to understand their needs, identify programmes to support, and assess the outcomes achieved.

Mr Suhaimi Zainul-Abidin, the foundation’s director, said: “We believe that philanthropy is uniquely positioned to take on calculated risks with innovative, untested approaches to solving social issues, so as to encourage experimentation by the social sector, demonstrate the viability of new ideas and drive longer-lasting change.”

Senior staff of Quantedge Capital, an investment management firm, donate annually to the Quantedge Foundation – “giving more in years when business is good and bonuses are high, and less in leaner times”, he added.

The foundation’s core focus is improving social mobility.

He said: “If we do not, collectively as a society, recognise that this is an issue that we should pay particular attention to, we may well sleepwalk into a stratified, divided society in the future.”

For example, Quantedge Foundation initiated talks with the Singapore Management University and Singapore University of Technology and Design to co-design and seed-fund an initiative, where financially needy Singaporean students will get a full financial aid package that makes their entire university education tuition free.

It also worked with a charity, Playeum, to pilot a series of science, technology, engineering, arts and maths workshops as an after-school developmental programme for children from lower-income families.

Since it was registered as a charity, the Quantedge Foundation has disbursed $7.4 million in grants and committed to giving another $8 million or so more.

The Soristic report ranked the Quantedge Foundation 22nd on its list, disbursing $2.3 million in grants in 2019.

Mr Suhaimi said: “In today’s knowledge-based, technologically driven capitalist society, the winners win by such a large margin that it is not quite right to keep all the gains without sharing some with the wider community.

“One of our hopes is that wealthy individuals, families and companies will find resonance in what the Quantedge Foundation is doing, and in time, give back to the society in their own way.”

If you have an interest in strategic philanthropy or would like to start a donor-advised fund with us, visit here.

This article was originally published in The Straits Times here. Source: The Straits Times © Singapore Press Holdings Limited. Permission required for reproduction.