What’s the Deal With Donor-Advised Funds?

Image: Ambro at FreeDigitalPhotos.net

Image: Ambro at FreeDigitalPhotos.net

If you’ve worked in fundraising for a while, you’ve probably heard of donor-advised funds. Your nonprofit may even receive funding from one. But do you understand how these funding vehicles work? Or how you can connect donor-advised funds to your mission? Read on for answers to these and other questions!

What is a donor-advised fund?

The National Philanthropic Trust defines a donor-advised fund as a philanthropic vehicle established at a public charity; it allows the donor to make a charitable contribution and receive an immediate tax benefit. The donor then recommends grants from the fund over time. 

A donor-advised fund works like a charitable savings account: a donor contributes to the fund as frequently as they like and then, when inspired, recommends grants to their favorite nonprofits. In the meantime, the public charity that holds the fund, often a community foundation or investment firm, invests the donor’s contributions and the earnings are tax-free.

How are donor-advised funds helpful to nonprofits?

Besides the obvious answer that nonprofits can receive funding from donor-advised funds, there are other ways they’re helpful. For example, donor-advised funds can accept gifts of complex assets that many charities aren’t set up to accept (think: collectibles, real estate, etc.). For more on this topic, see Ken Nopar’s insightful article, Donor-Advised Funds Are a Boon to Savvy Charities.

Also, it is more likely that donors will contribute larger amounts once that money has already been allocated for charitable giving instead of dipping into savings or even selling appreciated securities. Compared to private foundations which grant five to six percent of assets annually, donor-advised funds grant 16 percent on average each year (Nopar).

How can you connect donor-advised funds to your mission?

Make it easy! Include information on your website about How to donate through a donor-advised fund. Also, make sure your tax ID number is easy for donors to find (on your website or on printed materials) since they’ll need it to make a gift. If the registered name of your nonprofit differs from the name by which you’re known in the community, be sure to make this clear.

What’s the best way to acknowledge donor-advised fund gifts?

There is no need to send a tax receipt because the donor was receipted at the time they contributed to the fund. However, you should send a thoughtful and personal thank you letter. 
Don’t make assumptions about whether or not donor-advised fund donors wish to receive communications from you. Just ask. Would they like to be on your mailing list? Your email list? 

Often donor-advised fund gifts are significant, so if these donors are open to contact, treat them like major donors. Stay in touch, share stories, and keep them updated on the impact of their gifts. 

One final tip…

Sometimes the public charity, for example a community foundation, holding donor-advised funds acts as a “gate-keeper” to the donor, and requires all communication to run through the foundation and not directly to the donor. That’s ok, and you can work this to your advantage. Get to know the program officer assigned to your donor-advised fund and seek their counsel about the best ways to connect with the donors. The program officer’s job is to keep the donors happy so you’ll get the real scoop on donor preferences. 

What is your experience with donor-advised funds? If you have other suggestions, please share in the Comments box below!

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