Uses of Donor Advised Funds, by Gioia Perugini

I was recently on an Associated Grant Makers “Meet the Donors” panel presentation on the use of Donor Advised Funds. My co-presenters represented community foundations, federated giving programs and commercial providers of donor advised funds. We explained the 101 of donor advised funds, talked about how and why donors choose to use donor advised funds and discussed how nonprofits might encourage giving from “DAFs” in their fundraising. Preparing for this panel reminded me how the popularity and use of DAFs has grown and changed over the last several years.

Statistics show that DAFs are increasingly popular choices as a charitable giving vehicle. According to the National Philanthropic Trust’s 2013 data reported in 2014, there are more than 217,000 donor-advised funds, up 34 percent over the past seven years. While they were initially thought of as the alternative to a private foundation, they have been increasingly used as one of several giving vehicles for individuals and families. A donor might have a private foundation which she created or on whose board she sits, use a donor advised fund (or multiple donor advised funds) for a specific purpose or with her children or grandchildren. The DAFs might even be at different sponsoring organizations (one at a community foundation and one at a commercial DAF). She might continue doing personal giving, too. (You can read more about this in our “Tandem Use of Private Foundations and Donor Advised Funds.”)

DAFs are not without their detractors. Some say that because DAFs do not require a minimum annual distribution, charitable dollars lie in waiting. There is also a movement afoot to increase federal regulation of DAFs. Statistics show that in the aggregate, 20% of DAF contributions pay out each year, far higher than the 5% distribution required by private foundations. Some studies also show that DAF donors are more likely to be nonprofit volunteers as well.

There also seems to be lingering confusion among many nonprofits about what a DAF is, how it is used and how a nonprofit needs to interact with a donor who uses a DAF. The questions at the panel revealed that many nonprofits don’t know how best to make their fundraising “DAF-friendly.” Do I apply to a DAF? How does the development office steward a gift from a DAF? Are DAF donors different from foundation donors? Here are a few of the key points that were made by the panel that might be useful for nonprofits when dealing with this giving vehicle that appears to be here to stay:

  • Think of DAF stewardship as similar to the cultivation of individuals and major donors. You cannot apply to a DAF as you would to a private foundation with a public giving program.
  • Promote that you can easily accept gifts from DAFs. One of the commercial DAF providers has developed open-source technology that a nonprofit can install on its online giving page to allow donors to link directly to their DAF, making online giving using a DAF much easier for the donor. One nonprofit in the audience during the AGM panel reported that contributions from DAFs tripled after installing that widget.
  • Provide as much information as you can about your organization. Of course donors want to know about your programs and see the smiling faces of those you serve or the beautiful places you’ve improved, but adding a link to Guidestar or providing your legal name, current address and tax id number go a long way toward facilitating giving from a DAF.
  • Be acutely aware that your donors may be giving through multiple vehicles, and be prepared to engage in a dialogue about how your shared interests might align (good practice for any fundraising!).

I look forward to the next DAF panel to see how these vehicles are being used to further charitable giving and provide increased flexibility for donors.

This advisory is provided solely for information purposes and should not be construed as legal advice with respect to any particular situation. This advisory is not intended to create a lawyer-client relationship. You should consult your legal counsel regarding your situation and any specific legal questions you may have.

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