What you need to know about Donor Advised Funds

What you need to know about Donor Advised Funds

September 22, 2016

At their core, donor-advised funds (DAFs) are essentially charitable savings accounts and present another vehicle for donors to make contributions to nonprofits, albeit in a more indirect way.

To create a DAF, donors deposit securities into a fund housed and maintained by a 501(c)(3). The proceeds of that fund are then donated to qualifying nonprofits based on the advice of the donor.

DAFs offer donors an alternative to a private foundation. DAFs can accept donations of unusual or illiquid assets, provide a way to make contributions anonymously and require no yearly payout mandates or cumbersome administration. Unlike direct donations to a nonprofit of choice, contributions to DAFs guarantee immediate tax benefits and a delayed decision regarding the dispersal of funds.

For all these reasons, use of DAFs as a preferred giving vehicle is on the rise. According to the National Philanthropic Trust, from 2013 to 2014 grants from DAFs grew almost 30 percent to exceed $12 billion.

Many DAFs are housed by charitable divisions of investment banking firms like Fidelity, Vanguard and Charles Schwab. Others are managed by more storied organizations like United Way, the New York Community Trust and the Jewish Communal Fund. Regardless of where DAFs are held, donors benefit from the financial and administrative management that all of these groups provide.

So how can you acquire a grant from a donor-advised fund? To put it simply: solicit a contribution from the donor that set up the fund. As you do, here are a few things to keep in mind:

1. They are probably older. A Fidelity Charitable report on DAFs released in 2013 found that the average primary account holder is 62. having set up their account in their 50s. Unsurprisingly, this age corresponds with retirement. These donors want to both support the work of the charities they love while offsetting taxes accrued from investments with long-term capital gains.

All that said, DAF popularity among high net-worth individuals from the tech startup world, most notably Mark Zuckerberg, has been observed in recent years.

2. They may already be giving to your organization. Odds are this individual is no stranger to your organization, and with good donor stewardship, potential grants from these DAFs will soon be revealed. To make a broad assumption, a longtime loyal donor at a higher giving amount will be more likely to make a direct contribution to your organization, but a DAF prospect may present as a smaller intermittent donor. The uncertainty and lack of a firm commitment to any one organization may have been the incentive for the donor to create the DAF to begin with as they gain the advantages from a tax deduction now while deciding later which charity benefits. This presents your organization with an excellent opportunity to share the passion that drives your mission with a donor that you may have overlooked in the past.

3. If they’re not already giving to your organization, you can try to reach them through DAF Direct. DAF Direct promotes itself as a free, easy-to-install web application that connects nonprofits with potential DAF donors and works with Fidelity Charitable, Schwab Charitable and BNY Mellon, to name a few. This is a tech-based answer to the old-fashioned approach of establishing contacts at donor-advised funds.

4. They are well off but not extravagantly wealthy. The average DAF account was $296,701 in 2014, and charitable contributions as a whole are commonly 2 percent of disposable net income. Moreover, a typical threshold to set up a donor-advised fund is $10,000. Taking all these facts together, you may want to look for current and past supporters who have a moderate amount of disposable cash on hand or are about to turn 70 and will soon be forced to make withdrawals from their IRA.

5. Their DAF might reflect their giving priorities. Regardless of the age of your prospect, consider where they have chosen to house their DAF, as some look to pool contributions toward a larger cause – community foundations or religion-focused groups like those mentioned previously being such examples. These groups may help shed some light on areas of overlap for your mission and your donor’s values.

Christina Taler holds an M.S. in nonprofit and fundraising management from Columbia University and is an associate director at CCS. For more nonprofit tips, follow her on Twitter at @stinafsays.

Christina Taler