Over the past several months there has been a lot of negative media attention cast upon the nonprofit sector relating to Donor-Advised Funds (DAFs). But before I dive deeper into my thoughts about the matter, let’s start with the basics.
I have to say you may have your head buried in the sand if you haven’t read something about a DAF, but here’s a refresher. A Donor-Advised Fund is a philanthropic vehicle established at a public charity. It allows donors to make a charitable contribution, receive an immediate tax benefit and then recommend grants from the fund over time. Whew! That was a very scholarly explanation from AFP. In layman’s terms, a DAF is a way for individuals or families to save money or “funds” for philanthropic purposes which they can give out over time.
I know what you’re thinking: “Why don’t they just give all the money to charity now? And better yet, why not give it to my charity?” As we all know, donor intent can difficult to pinpoint. This vehicle allows donors to give money with the intention of charitable purpose while still researching and identifying the impact they wish to make. It’s far more likely the gift wouldn’t be made at all (to any organization) if the donor is not crystal clear on desired outcomes. As a fundraiser, we know purpose and discovery of desired impact is one of the most special roles we can play in a donor’s journey. The DAF gives time for that process.
While DAFs have gained in popularity, the concept has been around since 1931 when the first DAF was created by New York Community Trust. Over the past few years, with the rise of Community Foundations and organizations such as Fidelity, Schwab and Vanguard Charitable, DAFs have garnered new attention across the philanthropic and financial industries. It’s fair to say we have come a long way!
According to the most recent data for 2016, it is estimated there were just under 300,0000 DAFs in the United States. Last year alone brought staggering growth. According to the Giving USA Special Report “The Data on Donor-Advised Funds: New Insights You Need to Know” giving to DAFs made up 8% of annual charitable giving – $23.27 billion 2017. Of course, this could have been partially due to the new tax legislation, but there has been a consistent rise in DAFs over the last 10 years.
This pales in comparison to foundations, which hold a total of $890,061,214,247 in total assets, according to Foundation Center’s Aggregate Fiscal Data of Foundations in the U.S. 2015 data, which can be viewed here at http://data.foundationcenter.org.
So how do I feel about the DAF and how do I incorporate it into my nonprofit practice? I’m so glad you asked (well, read this much of my article, anyway…) Due to my love of all things “philanthropy” and my deep belief in donor-centric strategies, I am a strong supporter and advocate for the DAF. Any vehicle created for the benefit of the nonprofit sector and gives donors and nonprofits alike another funding opportunity is great news for our industry and the overall advancement of philanthropy. The more options we have and the easier we make it for people to be charitable, the higher the likelihood we move the needle of American philanthropy from 2% of GDP (around which it’s been hovering for close to 40 years) to higher levels.
Let’s also admit the last thing we want our donors or well-meaning individuals to do is start another foundation that only gives out an average 5% each year. DAFs typically grant 24% of their funds annually.
Tools such as a DAF are not inherently good or bad. Unfortunately, as with everything, I’m afraid, some funds are not created with the best of intentions of the greater good, but rather for the greater tax benefits of the donor. This does bring up the discussion and conversation about oversight but let’s remember one bad apple doesn’t always have to ruin the bushel. As we move into the “new era” of DAFs, I do believe there are some tweaks and regulations needed in transparency, reporting requirements and time limits for fund inactivity – all to ensure DAFs are dispersing gifts for philanthropic support.
On the other side of the coin however, donors who have DAFs should be able to pay pledges and the tax-deductible portion of events out of their funds. This account was created for a donor’s philanthropic use and as long as no goods, services or other benefit are provided to the donor I don’t see what the point in making a fuss.
We need to remember as fundraisers, we should seize any and all opportunities to build strong relationships with our donors. We shouldn’t be afraid to discuss giving vehicles other than cash with our donors. A DAF is simply another tool in the fundraising toolbox to help donors maximize their impact and giving potential to your organization. It’s our responsibility as fundraisers to understand DAFs and discuss them with our donor prospects.
I leave you with a few points to ponder as you explore and integrate a DAFs into your fundraising plan:
- Do your major donors have DAFs? Would they like to contribute through one? If you don’t have those answers, there’s one way to find out: ASK them.
- Does your organization’s website or donate page have a function through which donors can easily grant you a contribution from their DAF?
- Do you have an organizational profile on your Community Foundation website? Do you update it annually?
- Do you sit down with your Community Foundation or National Fund officers on an annual basis and ask for your grant report?
If you have more questions or thoughts about DAFs, I’d be more than happy to visit with you. You can reach me at klord@fundraisingJBA.com. Don’t fear the DAF. Just put it to work for your organization.