Donor-Advised Funds – What They Are and How to Leverage Them
How much of your organization’s revenue comes from donor-advised Funds ? If you don’t know, then you are very likely missing out on one of the fastest growing revenue channels for nonprofits.
How much money is out there in DAF accounts? Consider this, from the National Philanthropic Trust 2018 DAF Report:
- In 2017, there were 463,622 individual donor-advised funds across the country. Donors contributed $29.23 billion to these donor-advised funds and used them to recommend $19.08 billion in grants to qualified charities.
- Grants from donor-advised funds at Community Foundations totaled $5.78 billion in 2017, up from $4.87 billion granted in 2016—an 18.6 percent increase.
- From 2016 to 2017, total charitable assets in donor-advised funds at National Charities increased 30.3 percent, from a revised 2016 estimate of $44.96 billion to $58.58 billion for 2017.
As you can see, the potential revenue available to non-profits via DAF is significant. But first things first— What exactly is a donor-advised fund?
A donor-advised fund (DAF) is a charitable investment account, for the sole purpose of supporting charitable organizations a donor cares about. When a donor contributes cash, securities, or other assets to a donor-advised fund, the donor is are generally eligible to take an immediate tax deduction. Then those funds can be invested for tax-free growth, and the donor can recommend grants to virtually any IRS-qualified public charity.
In a nutshell, a DAF allows an investor to place money into an investment, tax free, so it can grow over time. The investor gets an immediate tax deduction but doesn’t actually have to distribute the money within any time frame. This allows the funds to grow and eventually help more causes.
But here’s the thing about a donor-advised fund: Unlike a trust, which legally has to distribute funds at least every 5 years, there is no requirement to distribute funds from a DAF. So what happens is that the investors don’t get reminded to distribute that money, so it just sits there gaining interest.
How can this help your nonprofit? You simply remind your donors that if they have a DAF, they can request that the funds be distributed to your organization. So you send them a friendly reminder!
This is often as simple as an email that says, “Dear Donor, Remember, if you have a DAF, you can request that the fund be distributed to our organization today.”
How to do this? Here are 3 simple steps you can take to leverage donor-advised funds.
- Send donors a simple email reminder, once a year, about releasing funds from their DAF. This doesn’t have to go to your entire file; DAF account holders tend to be among the major donor segments, so you can limit the message to this and similar audiences. Also, since these are major donors, you only need a handful to respond to see an increase in revenue.
- Add the DAF icon to the footer on your homepage. This will link to a dedicated DAF page with a widget that allows a request for funds directly from the page.
- Develop a strategy to identify donors who may have DAFs. This is tricky, because one of the attractions to DAF accounts is that is allows the donors to remain anonymous. But a simple survey can sometimes be enough to identify them. Be sure to flag known DAF account holders in your database.
This may seem like a very small, insignificant thing to do for your organization, but these donors have such a high capacity to give, making it very much worth applying these little updates to your program to facilitate DAF giving to your organization.
A former national nonprofit that I worked with implemented these 3 things and saw dramatic increases in revenue from DAF accounts in the first year— several hundreds of thousands of dollars over the previous year.
Have questions on donor-advised funds? Contact us!