donor-advised fundsAs a nonprofit leader, you know you should get gifts through donor-advised funds. But, where do you begin to make sure you’re not missing a significant source of revenue?

What is a donor-advised fund?

Let’s begin with the basics. A donor-advised fund is a vehicle where an individual can make a donation through a public charity established as a 501 (c)(3), which can accept the funds. A sponsoring organization, such as Fidelity Charitable or Vanguard, opens the fund. A DAF accepts an investment of anywhere between $5,000 and $25,000 to get started.

Some of the essential facts.

The scale of donor-advised funds is huge. The National Philanthropic Trust reported that 463,622 DAFs exist. Also, donor-advised funds have $110.01 billion in assets. And, over $29.23 billion live in DAFs. In the meantime, donations exceeded more than $19.08 billion to nonprofits through grants.

How do donors benefit from donor-advised funds?

There are several benefits that donors to DAFs get. First, setting up a private foundation usually makes sense only if you have over $1 million. Meaning, regulations can be significant for most people. Instead, DAFs allow donors to give to their causes—with less money. And, the administration is for the sponsoring organization to do, for a fee, of course.

Second, when a donor gives to a DAF, they get an immediate tax deduction. That’s because they donate to a 501 (c)(3) organization. Third, donors don’t have to make any donations outside of the fund. And that has caused a lot of debate within the industry. Meaning, money and fees get paid as DAFs investments grow with more money. But often, money does not go to charities in need of those funds. In contrast, a private foundation has to disburse 5 percent of its assets each year.

What should nonprofits know?

Nonprofit fundraisers should understand several things about DAFs. The most basic idea to know is that donors can’t discharge a debt or obligation. By definition, a pledge is an obligation to pay. So, donations have to be one-time gifts. But, they can contribute on a regular schedule.

Additionally, when a donor designates the sponsoring DAF organization to contribute to any 501(c)(3) public charity, nonprofits will have to “hard credit” the sponsoring group. For instance, Mr. Smith donates through his Fidelity Charitable donor-advised fund. The gift is coming from the Fidelity Charitable Fund. And, it must be “hard credited” from a financial perspective for the money. But, from a fundraising view in the CRM, it’s essential to “soft credit” Mr. Smith.

A final point since many nonprofits depend on revenue they raise from events. DAFs can’t fund event tickets.

The most crucial activity that nonprofits must do.

The single most essential action you should do is to nurture relationships with everyone involved in DAFs. In other words, don’t dismiss DAFs as institutional gifts from Schwab, Fidelity, or Vanguard.

Don’t make that mistake.

These donations get directed by individuals and families.

Once you have that realization, take a look at your files. See gifts from sponsoring DAF organizations. Then, make it a point to see the name of the owner of the DAF. Consider these people major donors to your organization. Acknowledge and thank the sponsoring organization for the gifts that come through DAFs. But, also thank the person and families who directed the contribution.

Remember, relationships are vital for any meaningful gifts to your nonprofit. So, nurture relationships with the executives at the sponsoring organization. Don’t forget to invite them to your events. Make it a point to develop strong ties to contributors who are directing DAF gifts to you.

Finally, also create relationships with tax, law, and wealth advisors. Remember, they work with individuals and families on charitable giving. Invite them to events, including workshops. In other words, invite them to learn a bit about your organization. And also offer them the chance to learn from a lawyer or wealth advisor that you recruit. This professional can put on a seminar about charitable and planned giving––sponsored by you.

 

 

Author of “Not Your Father’s Charity: Grip & Rip Leadership for Social Impact” (Free Digital Download)

 

© 2019 Wayne Elsey and Not Your Father’s Charity. All Rights Reserved