Donor-Advised Funds – What Fundraisers Should Know

Donor-advised funds are the ‘fastest-growing vehicle in philanthropy’ according to the National Philanthropic Trust. For the 6th consecutive year individual donor-advised funds, or DAFs, have increased by 6%. And in 2016 alone over $15.75 billion was granted to charities from DAFs.

Although the popularity of this style of giving has increased in recent past, its reputation still remains a bit cloudy. Here is what all fundraisers should know about donor-advised funds.

Donor-Advised Funds 101

Frank A. Monti, a philanthropy consultant and columnist at Inside Philanthropy, tells us to think of DAFs as a charitable savings account. They are funds where donors can put aside money that they intend to give to a philanthropic cause. While the donor decides exactly where to allocate the charitable dollars, the money is invested by a bank or financial firm and can grow tax-free. There is no time limit on the donation, but eventually, a beneficiary is decided upon, and the fund is gifted by the bank or firm on the donor’s behalf.

The Concerns

    • DAF assets are indefinitely stuck in limbo. The concern that these assets will be sitting endlessly in an account without reaching their charitable potential is valid. Without laws specifying that the money must be allocated within a certain time period, some speculate that these funds are primarily a way for the rich to get instant tax breaks.
    • DAF operators stand to gain from the lack of movement in assets. Generally, these types of funds have fees based on the amount in the account. Less money going out to charities, means more money accumulates in the fund, and therefore higher fees and more profit for the operator.
    • Donations could be personal financial obligations in disguise. DAF operators need to make sure that owners are TRULY donating to charity and not just using DAFs for their personal benefit (e.g. donating to their own foundation or paying a family member’s tuition)

The Pros

    • There are instant tax benefits. However philanthropic an individual is, the truth is that tax benefits are the icing on the cake. As soon as a donor’s assets are placed in a DAF, tax benefits can be taken advantage of. There is no need to wait until the money is allocated to a specific charity.
    • Individuals have more time to consider charitable options. Without the rush to make annual donations in time for tax season, gift-giving tends to be more strategic. It gives donors more time to research their desired charities.
    • DAFs aren’t only for the very wealthy. Although DAFs have the reputation of being exclusively for the rich, they don’t necessarily take a fortune to open. At well-known banks such as Charles Schwab and Fidelity, DAFs can be opened with an irrevocable donation of $5,000. And local banks generally have even less of a minimum donation.
    • There is an added value to donations in a DAF. Since this money is invested, with time, the amount of money in the DAF can grow. Talk about extra motivation.
    • This type of giving is flexible and user-friendly. DAFs are easy to set up and manage, they are easy to allocate, they have no time restrictions, and minimum donations are often quite low.

What Higher Ed Fundraisers Should Take Away from DAFs

    • DAFs are something you want to mention! Introduce DAFs on your website and in all donor communications. It is important to know which of your donors have DAFs. And if they don’t, it’s smart for you to offer them one. Schools can administer these funds. Cornell, for example, administers a DAF that includes various alumni and school groups combined.
    • Overall, DAFs are a win for nonprofits. Perhaps these funds could be improved with more regulations, but the big picture still looks good. It is best said by Jack Shakely of Philanthropy News Digest, “For the first time ever, philanthropy has a sales force. And philanthropy as a whole has benefited from it.”

 


Sources & Additional Reading

[1] 2017 Donor-Advised Funds Report, National Philanthropic Trust

[2] Donor Advised Funds 101: A Fast Road with Some Potholes, Insidephilanthropy.com

[3] A philanthropic boom: “donor-advised funds”, Economist.com

[4] Column: The charitable funds that benefit rich donors and the financial industry, Pbs.org

[5] A Year in Review: Emerging Trends in Philanthropy, Campbellcompany.com

[6] How to Set Up a Donor-Advised Fund, Kiplinger.com

[7] Who’s Afraid of DAFs?, Philanthropynewsdigest.org

[8] Trends in Philanthropy – the rise of Impact Giving, Harvardpolitics.com

[9] Opportunity Knocks: Donor-advised funds offer universities a pot of gold, Universitybusiness.com

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