Looking at Donor Advised Funds
Are you aware of these ever more popular tools for giving?
For years, the wealthiest, or at least most connected donors, used a tool called a Donor Advised Fund to manage their charitable contributions. The funds were mostly housed in community foundations or other grant making institutions. Donors would stick a large amount of money in these community foundations, and the foundation would account for investment gains and losses in these funds. The foundation would also give the donor 100% discretion on where to donate those funds, as long as those recipient organizations were legally allowed to receive them. In addition, any investment gains made by the fund were credited to the donor advised fund, giving the applicant more funds to donate to worthy causes.
Another twist to these tools is that it are currently no regulations on when dollars must be spent out of the Donor Advised Fund; donors can keep and accumulate the donations in their funds for years on end. However, when a donor makes a donation to their Donor Advised Fund, they get the immediate tax benefit.
Over the last few years, Donor Advised Funds have grown exponentially. Currently, 3% of all giving is coming from a donor-advised fund. In 2020, Donor Advised Funds had assets of over $34 Billion and paid out over $8 Billion in donations to non-profit organizations. In fact, if you research the largest grant-maker in the country, it’s Fidelity Charitable — which the largest donor advised fund provider in the country. In full disclosure, I have a Donor Advised Fund through Fidelity Charitable, in which my family does all our charitable giving.
The National Philanthropic Trust reported that in 2020, the average size of a Donor Advised Fund was just north of $166,000; however over half of the Donor Advised Fund accounts had less than $25,000 in them. So, these are tools that are quickly becoming the domain of more and more middle-class families and individuals.
What can I do as a Non-Profit Leader in regards to these Donor Advised Funds?
Keep a close eye on grants from donor advised funds. If you have donors that use this tool, still track their donation and thank them because they are showing obvious support of your organization. This may require a tweak to the gift entry process to identify these owners.
Fundraisers should realize that this new tool doesn’t necessarily mean the end of fundraising as they know it. We have heard it all before, People Give To People. Donor Advised Funds are just a new tool to facilitate that giving; this is still a relationship-building enterprise.
Charities should look at ways to facilitate the conversion of non-cash assets. Since donors are donating a lot of non-cash assets to DAFs, this suggests a need for charities to do a better job at facilitating conversions of stock, cryptocurrencies, etc. Charities ought to make it easy for donors to give in the way they want to give. The National Philanthropic Trust notes that in the 2018, the growth of contributions to donor-advised funds was higher than the growth of grants made from donor advised funds, possibly as a result of the tax law. However, they predict that donors may soon reverse the trend and give more from their donor advised funds.
Be on the lookout for companies that make employee matching gifts to Donor Advised Funds. National Philanthropic Trust notes that there is a rising trend for some companies to allow payroll deductions to Donor Advised Funds and/or match employee giving to funds from Donor Advised Funds. For example, American Express will match contributions from a Donor Advised Funds but not made to a Donor Advised Funds or to establish a Donor Advised Funds.