What Are Donor Advised Funds and How Do They Work?
A donor advised fund is a pot of money administered by a public charity, such as a community foundation, on behalf of individuals, families or organizations. During COVID19, we are seeing an increase in the use of donor advised funds in charitable giving.
A donor makes a charitable contribution from their donor advised fund and receives an immediate tax deduction. The donor chooses the nonprofit that will receive the grant and the community foundation or other administrator issues the funds.
In addition to community foundations, investment firms have created nonprofits to administer donor advised funds and other types of funds for their investors. Fidelity Charitable runs the largest donor-advised fund program in the United States.
Here is an example of a letter your organization may receive with a donation from a donor advised fund:
It is a pleasure to present a $1,000 grant to ABC ORGANIZATION to be used for PURPOSE. This grant was made at the recommendation of a fund advisor through a donor-advised fund at the XYZ Foundation.
Fund Advisor: Jane Doe
Fund Name: Jane Doe Family Fund
Please note that it is not necessary to send the XYZ Foundation any tax receipt or acknowledgment letter, and we ask that you do not add the XYZ Foundation to your mailing list.
Some things to keep in mind when receiving this kind of donation:
· Do not send a tax receipt or acknowledgement letter to the community fund or whoever administers the donor advised fund.
· Do send a gracious thank you letter.
· Do not add the investment firm or community foundation to your mailing list.
· Record the gift as a donor advised fund from the community foundation or other administrator and soft credit the individual who recommended the gift, usually the funder owner.
· It is still important to steward these donors.
· IRS regulations prohibit a donor from fulfilling or reducing the balance of a pledge with a payment from a donor-advised fund.
A donor advised fund helps the donor distribute their charitable dollars. You can help the fund administrators by keeping your public profile up-to-date on websites and search engines such as Guidestar and Charity Navigator.
Michelle Crim, CFRE
Dynamic Development Strategies can help. We offer coaching and fundraising services for our nonprofit clients. We specialize in startup and smaller nonprofits because we understand your challenges. Please contact us for more information.