Donor Advised Funds – the Magic Bullet of Fundraising
By Chris Cloud
Donor advised funds (DAF’s) are the secret weapon of many fundraisers. It represents money that is already donated so the decision hurdle for making a gift has already been cleared by the donor. DAF’s are therefore the easiest, most readily giftable major gift out there for most charities.
Donor-advised funds are philanthropic vehicles that allow individuals, families, or organizations to make charitable contributions to a fund, receive an immediate tax deduction, and then recommend grants from the fund to nonprofit organizations over time. DAF’s are a favorable and flexible way for many people of wealth to secure a charitable donation, secure an IRS deduction, preserve flexibility in how they give and when, and retain privacy of their charitable dealings.
DAF’s are booming in popularity and it isn’t hard to see why. Imagine that it’s nearing the end of the tax year, you earned a lot, you know you’re going to get a big tax bill from your earnings, you want to claim a charitable deduction and moderate your tax bill, but you don’t have time to research and decide where to give. The DAF is a perfect solution. You donate to a non-profit that is in the business of holding donated assets and giving from those assets based on the donor’s recommendations. Thereafter, over subsequent months and years, the original donor can pick and choose causes to support and make donation recommendations and the fund holder will honor those recommendations. If desired, this donor can remain completely anonymous – the recipient charity will only see the check that comes from the holder of the funds and not necessarily the identity of the original donor who recommended the donation. (Atlantic 2017 article on DAFs.)
DAFs receive criticism. There’s no financial incentive to quickly donate the funds out to causes and often donations are made simply from one fund to another. The criticism is that in some cases the original donor retains control, claims a donation, and effectively parks funds intended for charity indefinitely without the funds flowing to organizations doing traditional charitable work.
It’s important for fundraisers to come up to speed on DAF’s, understand their growth, and try to parse the trends. There is obvious major gifts potential – DAFs are easy for donors to make: they’ve already paid out the money, claimed their tax deduction, and the funds are simply in a holding pattern awaiting allocation.
DAFs are increasingly prominent on the philanthropic landscape so it’s important for fundraisers to understand them and factor DAF idiosyncrasies into their pitches to prospects. These idiosyncrasies include: 1) education is a favored recipient, 2) funds flowing to DAFs are growing fast, but the range of charity grantee organizations is growing much more slowly, 3) DAF giving appears to be responsive to crises, 4) DAF donors approach DAF gifts in a more specialized way then their ordinary giving, and 5) much like an ordinary giving larger charities are favored as DAF grant recipients ($20-million-plus-budget charities get half of DAF gifts).
These conclusions suggest that DAF donors treat their DAF accounts as something different than ordinary giving. They appear to resort to tried-and-true recipients like their schools and larger, blue-chip charities. However, in the face of a crisis many appear to “remember” the DAF resource and deploy it.
We are suggesting to my clients with major gifts programs that they take steps to remind donors about DAF resources they may have and work to present their charities as viable recipients of those funds. We believe it is going to be important going forward to expand the usual research that goes into briefings to include the presence of donor advised funds.