How Charities Can Benefit from DAFs
With 460,000 Donor-Advised Fund (DAF) accounts in the country, most nonprofit organizations understand that DAFs are here to stay. Many have taken steps to embrace them and determine how to receive grants from their current and potential donors who have DAF accounts. Five years ago, many charities viewed them as possible threats to their fundraising efforts, but most have now received numerous and significant grants from DAFs.
Because of recent market volatility and the 2017 tax law changes, many nonprofit organizations are concerned that the number of donors and amount of donations could drop. Fortunately, because many donors have established DAFs and have set aside funds in these accounts that can only be used for charitable giving, they will maintain their level of giving.
Development professionals realize that DAF sponsors cannot provide a list of their donors and will not recommend specific 501(c)(3) organizations. At the same time, nearly all donors know which causes and charities they wish to support before they even set up a DAF account.
However, there are many steps that charities can implement or items they should consider that involve DAFs which will result in additional or larger donations from their donors:
- Indicate clearly on charity websites that they accept contributions from DAFs (as well as from private foundations, bequests, appreciated stock, etc.). Most still just indicate on their Donation website pages that they accept credit card contributions and checks. Including content on the website that indicates that organizations can receive grants from DAFs (and foundations as well as bequests and donations of appreciated stock) will send a message that the organization is professional, efficient, and is used to receiving large donations and donations from charitable vehicles.
- List the information on websites that donors can provide to their DAF sponsors so they can vet the organization and quickly forward a check. Provide the tax ID number, address, and contact information for a development staff member should the DAF sponsor have any questions, or if they need information should they prefer to ACH funds instead of sending checks.
- Evaluate contributions from DAF donors. Numerous studies have shown that donors who have DAF accounts are more generous when recommending grants from those accounts than if they were to write checks, donate by credit card, or donate appreciated stock.
- When meeting with donors, ask them how they prefer to donate, and if appropriate, determine if they have a DAF or other charitable vehicles. Some who have donated by check or credit card may instead donate from their DAF account.
- Engage donors every time a grant from their DAF is received. One of the reasons donors discontinue support is when they are not properly thanked, yet many DAF donors do not receive thank-you notes when they make grants from their DAF account. If a donor has taken the time to establish a DAF, they are likely interested in and serious about philanthropy. Invite the donor for a site visit, volunteer event, or fundraising event.
- Though a very small percentage of grants from DAFs are anonymous, send a thank-you to the donor through the DAF sponsor and request that the sponsor forward it to the donor. Not all DAF sponsors will do this, but it is worth the small effort. Donors give anonymously for a number of reasons but welcome a thank-you note. Once thanked and engaged, these donors may increase the amount of their next grant or become public donors and advocates for the organization.
- Though it is difficult to ascertain the size of a donor’s DAF account, it is worth pursuing even if the grant is small. Though the median size accounts of the largest commercial DAF sponsors is under $20,000, there are also some very large accounts.
- Pay attention to which DAF sponsor has sent the grant check. If a donor sends a grant from a DAF sponsor that is a prominent bank or wealth management firm, that likely indicates that the institution manages their money and therefore the size of their DAF and wealth is substantial, even if the grant received is small.
- Let donors know that the IRS has indicated that DAF sponsors can now fulfill pledges from DAF accounts as long as the DAF sponsor does not refer to a pledge in the grant letter to the charity. (DAFs still cannot pay for tables or auction items)
- For organizations that can receive direct contributions from the three DAF Direct sponsors, also mention that they can receive grants from other DAF sponsors.
- Be aware that because certain assets have significantly appreciated in recent years, and because donors are able to donate large assets like privately-held stock, real estate, or insurance, donors may not feel comfortable in making these large donations at one time to one charity. By donating these to a DAF sponsor, they still intend to make grants to their favorite charities, but they are able to do this over time instead of fearing that they have to give it all at one time. Also, because the DAF sponsor does the work of accepting the asset, the charity saves much time, effort, and expense and simply receives the grant checks from the DAF sponsors.
The tide has turned, and most charities now welcome grants from donors who have DAF accounts. Those who do not embrace this growing trend may miss an opportunity, while those that do will benefit from more frequent and larger donations. Implementing some of these small changes can have a significant impact on fundraising efforts.
Ken Nopar is the senior philanthropic advisor for American Endowment Foundation, the country’s leading independent donor-advised fund sponsor for 25 years.