Donor-Advised Funds Are Growing
Donor-Advised Funds (DAFs) continue to be a popular philanthropic choice for many donors, so nonprofits need to learn how to maximize donor-advised fund distributions. Once a niche market, the growth of DAFs is outpacing other giving vehicles. According to the 2015 Donor-Advised Fund Report from the National Philanthropic Trust, DAFs experienced an 8.8% annual increase in the number of funds. According to the National Philanthropic Trust, the only other giving vehicle to experience a positive increase was private foundations, at 3% growth.
As reported in the The Chronicle of Philanthropy, Fidelity Charitable reported the following results for its DAFs:
- DAF grants totaled $1.6 billion to nonprofits during the first half of 2016, up 14% from the same period last year.
- The number of DAF accounts increased to 82,539, up 3% from the end of 2015.
- Grants made from DAFs averaged nine, and the average grant size was $4,300.
Donor-advised funds are also successful in attracting newer donors to engage in philanthropy. According to the 2016 Fidelity Charitable Giving Report, 61% of accounts have balances of less than $25K, and the median account balance for all accounts is $15K. This indicates that DAFs often serve as an entry point into philanthropy, with individuals making smaller gifts before graduating up to 6- or 7-figure giving. The average grant size from a Fidelity account is $4,179.
Why People Choose Donor-Advised Funds
Understanding what motivates donors to choose a donor-advised fund can help your organization make the most of this growing constituency. Donor-advised funds offer:
- The ability to time decisions about when to make philanthropic gifts to donor-advised funds separate from decisions about requesting distributions to nonprofit organizations.
- Anonymity when distributions are made to nonprofit organizations, although most don’t choose to remain anonymous. According to the 2016 Fidelity Charitable report, 91% of donors choose to disclose their name and address.
- Opportunities to work directly with a philanthropic adviser to learn more about philanthropic options to aid in recommending donor-advised fund distributions.
- Interactive online giving sites where one can see the DAF fund balance and distributions, and recommend grants, etc.
- A single receipt for income purposes (when making a gift to the donor-advised fund) versus multiple receipts from a number of nonprofit organizations.
Donor-Advised Fund Features for Fundraisers to Consider
When developing a donor-advised fund strategy, consider these special characteristics of donor-advised funds.
- Unlike family foundations, donor-advised funds do not have required annual distributions.
- Donor-advised fund donors typically represent persons who have newly acquired money versus old money.
- People can get immediate income tax benefits for putting cash and other assets into DAFs versus having to wait for tax benefits until they make gifts directly to nonprofit organizations.
- Donor-advised funds provide convenient vehicles for donors to move assets into for future estate planning decisions.
- According to the Fidelity Charitable Report, 62% of accounts are managed by multiple people. Individuals are choosing them as options to engage with family members on philanthropic decisions or teach their children the importance of philanthropy.
How Nonprofits Can Maximize Donor-Advised Fund Distributions
- Rather than express frustration that some of your donors are giving to DAFs, embrace and applaud their charitable giving decisions—decisions that may well, when DAF distributions are made, benefit your organization.
- Thank and steward persons who request distributions from DAFs, including reporting on the impacts their requested distributions are making.
- Develop and implement an outreach strategy to get to know DAF advisers, because they may be in positions to recommend your organization to their fund donors.
DAFs are here to stay and will continue to increase in popularity. Stay tuned for our next client advisory, where we will cover advancement services considerations related to gifts from DAFs. For advice on how you can develop and implement strategies to maximize DAF distributions to your organizations, contact the professionals at Bentz Whaley Flessner. Together, we transform philanthropy.
Originally published September 28, 2016
Copyright © 2016, Bentz Whaley Flessner & Associates, Inc.