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Nonprofits Ignore Donor Advised Funds at Their Peril

By Lori Sampson, MBA, EA, CAM

Why should my nonprofit care about Donor Advised Funds?

They are a growing force in the landscape of charitable giving. Donor Advised Funds, or DAFs, are the fastest-growing recipients of charitable giving in the U.S., growing 66 percent from 2012-2016. By 2017, six of the top 10 charitable giving organizations were DAFs. In 2016, the Fidelity Charitable Gift Fund became the greatest single recipient of charitable giving in the U.S., beating out the United Way for the top spot.

What is a Donor Advised Fund?

They are a philanthropic giving vehicle administered by a 501(c)(3) charitable sponsor with legal control over the fund. Fund administrators--called sponsors--include public charities, community foundations, and financial services firms. It is the financial service sponsored funds—such as Fidelity Charitable, Goldman Sachs Charitable Gift Fund, and Vanguard Charitable—that are responsible for much of the explosive growth in donor-advised funds in recent years.  The donor-advised fund itself is a nonprofit, but the assets in the fund are managed by a for-profit investment company.

In practice, DAFs have become like personal charitable savings accounts. Donors give tax-deductible gifts to the funds expecting the money to grow, magnifying their donation’s impact over time.

How does a nonprofit work with a DAF? 

While the fund sponsor controls the assets, it is the fund’s donors that usually direct which charities receive the money and other assets from the fund. Nonprofits can skip sending solicitation or donor mailings to the fund itself.  Instead, the target should be people who contribute to donor-advised funds. The fund sponsor isn't legally required to fulfill the donor’s requests for grants to go to a certain charity or cause.  But they usually abide by the donor’s wishes as long as the nonprofit recipient meets their qualifications.

Always be sure to send an acknowledgment of a DAF gift to both the fund sponsor and the individual donor. The donor won’t get a second tax write-off; they already received that benefit when they donated to the DAF.  But it behooves you to track and acknowledge the supporter who made the gift happen.

A few caveats you should be aware of when trying to get gifts from a benefactor’s DAF:

  • A gift from a DAF can’t be used to fulfill an individual donor’s pledge to your organization.
  • A DAF gift can’t be used to purchase tickets to events or a hosted table for the donor, even if the tickets are then given away by the donor.  
  • The donor can’t receive any benefits as a result of a donation from the DAF they contributed to.

A gift from the DAF can be for a one-time, specific purpose, such as a contribution to a capital campaign. Or, a donor can usually set up a recurring annual grant to an organization, eliminating the need for the donor to initiate the grant every year. It’s worth asking any donor who made a one-time gift through a DAF to consider a recurring grant.

How do I attract gifts from a DAF?

The best way to get gifts from a DAF is to start suggesting it to your supporters. You may find many philanthropists in your community are already participating in a DAF. Let them know your organization is looking for gifts from DAFs to help fulfill vital mission goals. Be sure to mention you accept gifts from donor-advised funds on your marketing materials and website. And, most importantly, be vigilant about identifying your current supporters who participate in a DAF and following up with the donor if you receive a DAF gift.

What if I get a gift from A DAF but don’t know who prompted the gift?

Even if the gift arrives from a fund without the requesting donor’s information attached, you can usually find out who requested the donation unless they want to stay anonymous. Research the fund. If it’s not obvious who is supporting the fund, ask the fund manager to shed light on the gift.

And even if the gift is anonymous, many fund sponsors are willing to relay a thank-you note to the donor. It’s worth asking.

DAFs are poised to continue their growth in the coming years. Changes to the standard tax deduction that went into effect in 2018 might further spur DAFs as philanthropic-minded taxpayers look to bunch donations into certain tax years while still consistently supporting their favorite causes. Nonprofits must be aware of donor-advised funds and how best to work with them in pursuing financial support.

Lori Sampson is a partner with Myers, Brettholtz & Company, PA and manages the accounting services department.  Her years of experience include working with nonprofit organizations, small business, and homeowner and condominium associations performing part time CFO, controllership and consulting services.  She has been with the firm since 1993.

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