Recently, I reflected on exactly what I’ve learned over the course of the last year and a half working at DonorsTrust. As a career fundraiser, I noticed in my reflections that I kept going back to how little fundraisers really understand donor advised funds (DAFs).
This isn’t meant as a slight. I was in the same boat before moving to my current role. I knew DAFs existed, and that they sent my organization money, but I didn’t really understand how they operated or what I needed to do when dealing with them.
With this post, I want to clear up some of the misconceptions that exist about DAFs in the community of fundraisers. My hope is this will help you be more effective when dealing with people like me and, more importantly, with your donors who use such funds.
Bigger Than You Think
Donor advised funds were first established in the 1930s but have grown in popularity since the 1990s. They are now the fastest-growing philanthropic vehicle. Between 2007 and 2017, assets in donor-advised funds nationwide grew from $32 billion to over $110 billion. This trend shows no signs of abating.
DAF donors are active philanthropists. In 2017, the last year for which data is available, DAF donors recommended over $19 billion in grants to qualified charities. Responding to a recent survey, two-thirds of DAF donors stated they give more than they did when they did not have a DAF.
These facts alone should be cause for heightened awareness among fundraisers.
What is a DAF?
When asked to explain a DAF, I always respond that the easiest way to think of a DAF is that it is an investment account for charitable giving. It works like this:
- A donor contributes to a DAF and takes an immediate tax deduction. The charitable assets now legally belong to that DAF’s sponsoring organization. The donor, and other named individuals, then become a DAF advisor.
- Assets in DAFs can be invested and any grow tax-free. This means that more money is generated for charity.
- The DAF advisor can recommend grants to the nonprofits he or she wishes to support. The sponsoring organization will conduct due diligence and, if that research shows the organizations are eligible to receive tax-deductible contributions, issue the grants to the charities.
DAF’s can be established with little paperwork or online in minutes. This quick and easy way to create a philanthropic vehicle is in contrast to private foundations and other giving vehicles that can take months and significant expense to initiate. Because DAFs are much simpler to set up than private foundations, people of even modest means can become involved in grant-making.
In removing the administrative burdens of charitable giving, DAFs allow their advisors to pursue a well thought out long-term strategy. For nonprofits, this means those donors with DAFs may give larger donations and multiple gifts.
There is no legal payout requirement from DAFs. Compare this to private foundations, which are annually required to grant out at least five percent of their corpus (which often includes overhead). Despite having only 12% of the assets held in foundations, DAF payout rates are nearly four times as high.
Donors’ reasons for using a DAF are as varied as the donors themselves. In our free resource 6 Reasons to Use a Donor-Advised Fund, we highlight these in particular:
- A DAF streamlines and simplifies the giving process.
- Tax benefits that can’t be beat.
- DAFs offer flexibility that can’t be beat.
- DAFs compliment other charitable vehicles.
- They can give as publicly or as privately as they’d like.
- They can partner with a DAF that shares their principles.
The Fundraiser’s Relationship to DAFs
At DonorsTrust, we view ourselves as a community foundation, but bound by ideas and not geography. Fundraisers in the liberty movement in particular should see us as a partner in achieving our shared goals.
What does that mean for how you interact with DonorsTrust, and with other DAFs? Here are a few ideas.
- Educate your organization about gifts from DAFs. You should not send a tax receipt to DAF advisors, as they’ve already received one, but you may send a thank-you letter. If you don’t have the name of the donor, send it to the sponsoring organization and they will make sure it gets to the advisor. Remember, you are still in the relationship building business.
- When meeting with us be prepared. We will ask difficult questions about existing programs, plans going forward, fundraising, it could be just about anything. We will notice if you answer the question you wanted to answer instead of the one that was asked and if you lie you risk damaging the relationship. Be honest and it’s okay to get back to us with the answer if you don’t know it.
- Steward sponsoring organizations. Don’t send solicitation letters and have a working knowledge of how DAFs work. Feel free to send an acknowledgment letter when you receive a gift. Most importantly keep the lines of communication open.
- Feel free to over communicate. This one seems easy but you’d be surprised how little contact sponsoring organizations have with some grantees. Keep us up to speed on existing projects and update us on new and interesting projects. Advisors often ask for advice on nonprofits and issue areas that they are interested in. By over communicating we are best equipped to inform our donors about things that might interest them, and that might result in more donations for you.
- Make sure your information is up to date. It is the sponsoring organization’s job to perform due diligence on new nonprofits advisors are interested in. To accomplish this we often use sites like Candid (formerly Guidestar and Foundation Search) and Charity Navigator. Not having your information updated and easily available can slow that process down and even grind it to a halt.
- Be familiar with IRS rules concerning DAFs. Grants from a DAF cannot result in a benefit to the DAF account advisors, their family members, or the donor to the DAF account. A common mistake is applying a DAF grant to an annual dinner table or other kind of event sponsorship. Grants must be made strictly for charitable purposes. If you are unsure please feel free to reach out to the sponsoring organization. I’m sure someone will be more than happy to chat with you.
Again, we occasionally find nonprofits who think of DonorsTrust as a competitor, but in truth we are members of the same team. Our donors are your donors, and our mission is to ensure a constant and increasing revenue stream to conservative and libertarian focused charities in the United States and increase their impact.
We are not your competition. We should complement each other’s missions to grow a community of liberty.