Donor Advised Funds -- Ten Facts All Fundraisers Should Know

By Susan Fields, CFRE

Over the last five years the number of Donor Advised Funds (DAF’s) in the United States has more than doubled with total combined assets of more than $110 billion, which will eventually go directly to charities selected by the donors who opened these funds. An in-depth AFP-NYC Educational Program in November 2018 provided attendees with the following information regarding this up-and-coming charitable contribution vehicle.

 

MODERATOR

“Fundraisers need to examine how to access for their organizations the increasing amount of money contributed to Donor Advised Funds each year.”

Craig Shelly

Managing Director, Orr Group

PANEL

 

“Work with the data entry team in your organization to make certain that gifts from these funds are properly entered into the system so that donors can be appropriately stewarded.”

Ellen Smith Israelson
Vice President, Jewish Communal Fund

“There is a general misunderstanding in the nonprofit community as to what Donor Advised Funds actually are and the impact they will have on the fundraising process.”

Mark Hefter, JD, CPS, LLM
American Technion Society

“Donor advised funds began as a product of community foundations and in the early 1990’s moved to big players such as Vanguard and Schwab.”

Sarah Shannon
COO, Brooklyn Community Fund

 

According to National Philanthropy Trust almost $19 billion in grants were made in 2017 to nonprofits both nationally and internationally through DAF’s. What began in the early 1990’s primarily as a product of community foundations seeking to service major donors has now become the domain of large financial corporations such as Schwab, Vanguard, Fidelity and large nonprofits such as the Salvation Army, Catholic Charities, National Christian Fund, and United Way Worldwide who have their own internal Charitable Gift Funds.

Ten FAQ’s Regarding Donor Advised Funds

1.   WHAT IS A DONOR ADVISED FUND?

A DAF is an investment account in which a donor places money with the primary purpose of contributing funds to a 501(c)(3) nonprofit charitable organization. The investment can be in the form of cash, stocks or other forms of assets such as real estate which can remain in the fund for an indefinite period or be immediately contributed to a qualified charity. The advantage to the donor is that he/she can receive a tax deduction in the year in which the investment is made regardless of whether the funds were passed on to a charity at that time. Of course, all funds contributed to a DAF are irrevocable.

2.   WHAT BENEFITS DO DAF’S PROVIDE TO THE DONOR?  

The major benefit to the donor is the ability to create a space in time between the investment of the funds and the time that the gift is made to the charity or charities. In essence, it is a quick and easy way to establish a charitable fund which can grow tax-free over time—meaning that more money can eventually go to the donor’s nonprofit/s of choice. Donors can also set up recurring gifts to charities within the fund. In some cases due to a huge unexpected influx of income a donor may deposit a large sum of money into the fund during one year with the result of funding philanthropic giving for many years to come.

3.  ARE THERE OTHER REASONS THAT DONORS CHOOSE DAF’S?

It’s uncomplicated! Let’s say a donor decides to give $5,000 a year to charity but hasn’t determined where to contribute the funds. The donor can deposit $15,000 and receive one tax receipt for that entire gift—which might be in a year when they need the deduction due to a financial bonanza--and can make grants to as many charities as he/she desires in the future. DAF’s avoid the necessity for paperwork and also allow the donor to remain anonymous if they wish. Many DAF Sponsors (Vanquard, Schwab, Fidelity, etc.) provide the service of researching potential grantees to make certain that they are reputable nonprofits.

4. CAN A DONOR’S FAMILY BECOME INVOLVED IN MANAGING A DAF?

Most definitely! The person setting up the DAF—can select family members to serve as “Successors” to carry on the tradition of giving. In fact, a DAF is similar to a family foundation without the cost and complexity of managing such an entity. It allows the donor with his/her family’s input and involvement to make financial decisions that could easily set in place long-term habits of giving that could be highly beneficial to many charities going forward. If ongoing contributions are made to a DAF it is highly possible that it could become like an endowment where the income from the investment would support various charities in perpetuity.

5.  HOW CAN FUNDRAISERS BENEFIT FROM DAFs?

If possible, fundraisers should learn which of their donors make gifts through DAF’s. This may be difficult when donors choose to remain anonymous. In most cases, checks from DAF Sponsors such as Fidelity or Vanguard include the name of the donor that made the grant. It is important that this be recorded in the nonprofit’s database so that DAF donors can be cultivated to make recurring and ever-increasing gifts. The nonprofit should also advertise on their website and in their publications suggesting that donors make contributions through DAF’s if they have them. Keep in mind that such donors might also be open to planned gifts made though this investment tool. 

 

 

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