Strategic Risk-Taking in Philanthropy with a DAF

The short blurb about a new organization caught Pam’s eye.

In an email to DonorsTrust clients, she was introduced to a start-up effort to improve the way free-market messages get communicated to broader audiences. She’d long wanted to give to such a cause, but hadn’t been sure how.

We all want to use our charitable dollars wisely. Many donors mitigate the risk of “wasting” philanthropic dollars by sticking to what they know instead of expanding into new areas. We fear giving to the “wrong” group or just not having our generosity acknowledged.

Yet without risk-taking by donors, the non-profit community stagnates. In combination with bootstrapping young organizations and energetic social entrepreneurs, donors create new solutions that bubble up and help more people.

How do we go out on a charitable limb without falling to the ground? There are smart ways to hedge your philanthropic bets. Using a mission-driven donor-advised fund offers a terrific tool for growing your giving. Here are four ways a trusted DAF partner such as DonorsTrust makes strategic philanthropic risk-taking, easy.

Trusted Recommendations

Donors working with a community foundation or mission-driven donor-advised fund know the organization has a specific focus. In its area of expertise, be it a geographic community or the world of free-market groups, donors can trust that their DAF provider offers helpful insights.

Many donors come to a DAF with a stable of organizations they already support. However, that list can change and grow over time with the help of DAF providers. Pam’s discovery mentioned above is case-and-point. She learned about this new messaging project thanks to one of our client communications about new projects.

Likewise, donors regularly come to us with questions when they are seeking out ways to expand their giving. The specialized knowledge of a DAF provider offers a valuable data trove for donors exploring a new group or issue area.

Start Anonymously

Giving to a new project or group doesn’t mean you’re ready to do so again. With a donor-advised fund, you can request a gift with no attribution to you – when the grant letter arrives, it indicates the grant is from the DAF provider at the recommendation of an anonymous client.

Donating in this way allows you to encourage a group’s work and help the effort move forward without the need to build a relationship with the organization. You continue to watch from afar and see how the group uses your gift.

Later, you might change your perspective, adding your name to gifts and accepting outreach from the organization directly. Alternatively, you might watch the effort further and decide it isn’t a good match for your charitable goals. You can move on without having to personally “break up” with the group. (Better yet, if you move in another direction, you won’t stay on the group’s mailing list for years!)

Structured Gifts

Big, multi-year gifts are exciting, both for the donor and the institution receiving the funds. They also come with risks. What if, years into the project, the organization goes astray? What if, God forbid, you pass away, and you can no longer ensure your donor intent is being met?

Here again the donor-advised fund can play a risk-mitigating role in a risk-taking bet. Structuring a gift through a mission-driven DAF can make it easier to turn off the funding spigot if things go off-course, particularly if you are no longer there to steward the gift yourself.

Beyond the donor-intent piece, there may be tax reasons to utilize a DAF for a major, long-term gift to an organization. Should you find yourself on the receiving end of a financial windfall, be it from selling a house, a company, or receiving a generous inheritance, you can mitigate the potential tax liability by front-loading a large charitable donation into the donor-advised fund and making arrangements for your major gift to be paid out over some period of years.

Put another way, the DAF account offers you more flexibility – and potential tax benefits – while still allowing you to make a major bet on an organization you love.

Legacy Protection

We have all heard horror stories of charitable intentions gone astray after a person’s death. The risk of your giving drifting from your intent after your death is high for everyone. These stories seem even more prevalent for ideologically right-of-center donors.

Because of this, there is perhaps no greater reason to partner with a mission-driven donor-advised fund than to serve as a principled steward for your charitable legacy.

If a donor-advised fund isn’t a fit for your giving during your lifetime, you can still designate funds from your estate to fund a legacy DAF. By leaving behind a well-defined donor intent statement and clear instructions for who should (and should not!) advise the account after your death, you craft a legacy to be carried out as you wish by the DAF provider.

DonorsTrust’s original account holder, Bruce Jacobs, did his giving from a community foundation, but worried it wouldn’t follow his conservative wishes when he passed on. Mitigating that risk sparked the creation of DonorsTrust and continues to form the centerpiece of how we think about giving.

The nation’s non-profits can do more when donors take a chance on new efforts and innovative organizations. Taking those risks can be done in a less risky way, though. A donor-advised fund – particularly a mission-driven fund – can be your partner in expanding your giving while still hedging your bets.


  • Peter Lipsett

    Peter Lipsett is vice president at DonorsTrust. He also leads DonorsTrust’s Novus Society, a network of donors under 40 committed to growing their philanthropic know-how. He has a dual degree in political science and theater from Davidson College and finally got a practical credential with an MBA from George Mason University.

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