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Friday, January 15, 2016

Donor Advised Funds: Are You Getting Your Share?


Donor Advised Funds (DAFs) continue to be an attractive vehicle of charitable giving. In fact, an astonishing $19.66 billion was contributed to donor-advised fund accounts in 2014. That brought total charitable assets under management in donor-advised funds to an all-time high of $70.7 billion.

These and other eye-popping numbers appear in the National Philanthropic Trust’s 2015 Donor Advised Funds Report. Other findings include:

  • The total number of donor-advised fund accounts increased by 8.8% to $238,293. 
  • The average donor-advised fund account size reached $296,701, another all-time high.
  • Grant-making from donor-advised fund accounts to other charities jumped nearly 30% between 2013 and 2014, from $9.83 billion to a record $12.49 billion.
  • That $12.49 billion equates to a payout rate of 21.9%—substantially higher than the 5% requirement of private foundations.

A Donor Love Affair
The reality is that donors love DAFs. Typically managed by community foundations or financial services companies, DAFs allow donors to designate specific funds for charity, receive an immediate tax benefit and then decide over time which nonprofits will receive grants. In particular, DAFs are an effective vehicle for making gifts of appreciated stock and other assets. In addition to receiving a tax deduction, donors avoid paying capital gains tax on the gift.

The best news is that DAFs can lead to larger and more consistent donations. For example, the numbers are typically bigger with a DAF, which typically require a minimum grant amount. So, instead of donating $100 by check or credit card, a donor with a DAF may make a $500 grant request. There’s a psychological element to giving through a DAF, as well. Since the account is already funded, it may be easier for donors to release larger grants from money they’ve "already given away."

Finally, DAFs can lead to more consistent support. Donors can easily recommend a recurring grant that is funded automatically from their DAF each year.

Practice Some DAF-Friendly Fundraising
Getting donors to recommend a grant from their donor-advised fund requires some DAF-specific approaches.

  • Ask: You don't know who has a DAF until you ask. So, for example, you could add a box on your print and online giving forms that says "I intend to recommend this amount from my donor-advised fund." Once they raise their hand, flag potential DAF donors in your files so that you can target them with appropriate solicitations in the future.
  • Promote: Add a page on your website explaining how to donate through a donor-advised fund.
  • Simplify: A donor needs your tax ID number in order to make a gift through a DAF, so make sure it’s easy to find. Ditto for providing your organization's "real" name if your legal name is different than the name people know you by.
  • Acknowledge: Even though the actual donation is being made by the charitable endowment, try to acknowledge donors by name (or at least by the name of their donor-advised fund). Note that you don’t need to send a receipt. The donor was provided a receipt when the money was initially deposited into their DAF.

In light of the increasing impact of donor-advised funds, it may be in your organization’s best interests to encourage not only grants from existing DAFs, but also encourage existing donors to create DAFs.

For more information on donor-advised funds, contact your local Armanino nonprofit expert.

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