Donor Advised Funds (DAF) have been around since the 1930s but became more widely accessible in 1991. DAFs are the fastest-growing charitable giving vehicle in the United States because they are one of the easiest and most tax-advantageous ways for donors to give to charity. Donors use DAFs to make charitable contributions and receive an immediate tax deduction. A DAF is administered by a public charity such as a community foundation.
Donors fund their DAFs with cash, securities, and other assets. Donors also advise the sponsoring organization regarding how they want their contributions to be distributed to qualified nonprofits. DAFs provide flexibility, convenience, and potential tax benefits for donors, while also supporting charitable causes and organizations in the community.
DAFs essentially operate like foundations but without the same restrictions. For example, foundations must disclose their donors to the public and must distribute minimum amounts for charitable use each year. This is usually around five percent of the fair market value of their endowment, DAFs have no such requirements.
Supporters of DAFs say that these funds, as a whole, distribute about twenty percent of their assets, but more than forty percent of the two million Donor Advised Funds make no distribution.
Billions of dollars are held in Donor Advised Funds. The challenge for fundraisers is how to identify and cultivate the individuals and families who hold these funds. Oftentimes the donation comes from the sponsoring organization, like the community foundation, with no information regarding who the actual donor is. Donations from DAFs do not require a tax receipt letter from the nonprofit, but it would be nice for the recipient to be able to send a thank you letter.
You may have received DAF donations and didn’t know it. One simple way to identify possible DAFs is to mine your database and look for key words such as “advised” and “fund.” Another tactic to identify DAF donors is to meet financial advisors. Getting to know your key donors and simply asking them is another option.
If you want to learn more about this giving vehicle, a good place to start is the Charitable Gift Planners Association in your area. In Fort Worth we have the Lone Star Council of Charitable Gift Planners, and in Dallas we have the Dallas Council of Charitable Gift Planners. Attending these monthly program will help increase your knowledge of working with DAFs and other planned giving options.
Michelle Crim, CFRE
Dynamic Development Strategies can help. We offer coaching, grant writing, and fundraising services for our nonprofit clients. We specialize in small to mid-size organizations because we understand your challenges. Please contact us for more information.
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