One of the trends in the fundraising world—the growth of donor-advised funds (DAF) as intermediary vehicles for charitable giving—hit a benchmark last year.
Fidelity Charitable Gift Fund was ranked No. 1 among charities that raised the most money in 2016, according to the Philanthropy 400 list, which is compiled by The Chronicle of Philanthropy. This is the first time that the sponsor of a DAF topped the ranking of 400 U.S. charities that raise the most in private support. And Fidelity was one of five DAFs created by financial institutions that were ranked in the top 15.
This was the sixth year in a row of double-digit growth for these funds, which as of 2016 held accumulated assets of $80 billion in 270,000 individual funds.
Donor Advised Funds allow a donor to take an immediate tax deduction for a donation into an account, while postponing the donor’s decision to support an operating charity. The national financial institutions behind the largest and most numerous of these funds created them as a service to their high-net-worth clients. Like community foundations, they become middlemen, investing the funds until donors advise them of which operating charities they want to support and when.
Development professionals should understand these funds, the fastest growing charitable vehicle, particularly as they relate to our donors. They could represent a layer between our organizations and our donors. You may, therefore, have to work harder both to identify and to steward your donors, using the following strategies:
- Remind donors often, through your materials and conversations, of the option to give through their DAF. Because there are no requirements for actual giving, inertia may lead donors to keep funds invested rather than put them to work for a direct charitable purpose.
- Make identifying donors with advised funds a topic of your conversations with them. DAF’s differentiate themselves by offering donors anonymity, with privacy policies stipulating that they won’t provide the name of the donor without their express permission. The only way to find out may be to ask directly, and if they let you know when a DAF distribution is coming from them.
- Make it clear on gift agreements and pledge letters that gifts from a donor-advised fund cannot be used to pay a gift pledge.
- Donors should also know that they cannot use their DAF to support a special event or any activity where they receive goods or services in return.
- A gift through a DAF does not need a tax receipt for income tax purposes. The gifts have already gotten tax credit when the DAF was funded. But don’t forget a personal acknowledgement.
- Become a resource for your prospects by recommending donor advised funds when they really fit. These financial institutions can manage the very sophisticated financial assets that many of the wealthiest individuals now have access to. From a tax perspective, it is advantageous for individuals with complex assets—like closely held stock, investments in hedge funds, even Bitcoin—to give to a DAF. Encourage them to consider setting up a DAF as a way to give to your cause.
- DAFs do not generally accept direct proposals for funding, but they are likely to take on a more active future role to facilitate their clients’ charitable decisions. Fidelity Charitable Gift Fund has suggested that they use the internet to research charities online. This means that our nonprofit organizations should update their websites regularly (as well as GuideStar, the Better Business Bureau, Wise Giving Alliance and Charity Navigator listings).
If you have questions about DAFs, please feel free to contact me directly at: strauger@schultzwillstg.wpengine.com.
