There is a funding source that donated $12.5 billion to charities last year. Sadly, most nonprofit organizations ignore this massive opportunity for support with only 23 percent saying they are “very familiar” with how this funding source works, according to a report from Vanguard Charitable.
I’m speaking of Donor Advised Funds.
Donors create a DAF by opening an account with charitable organization equipped to manage it. Donors then make irrevocable donations of cash or appreciated assets to their DAF account to receive current year tax benefits and deductions. Donors can choose how their contributions are invested creating the potential for tax-free growth that can fund larger charitable grants. Donors “advise” when and how much to grant and to which organizations.
Unfortunately, many fundraising professionals overlook DAFs. They think DAF donations will either automatically come in or won’t. Some fundraising professionals simply complain about how much money is going into DAFs rather than to charities.
I think there are five myths about DAFs that we need to debunk before we review how you can secure DAF grants for your charity:
Myth 1: DAFs don’t generate enough total contributions to deserve attention.
In 2014, DAFs contributed $12.5 billion to charities, a 27 percent increase over 2013, according to a report issued by The National Philanthropic Trust. That’s 3.5 percent of all charitable giving in 2014!
Myth 2: DAFs might give a lot of money, but there are not that many of them.
The reality is that 238,293 DAF accounts existed in 2014. While some donors have created multiple accounts, the number of DAF donors is nevertheless large and growing. To put this into some perspective, there were just 107,000 Charitable Trusts created in 2014.
Myth 3: The average DAF does not contribute very much money.
The average size of each DAF account grew from $260,626 in 2013 to $296,701 in 2014. DAFs had a payout rate of 21.9 percent. This is much higher than the five percent payout rate required of private foundations.
Vanguard Charitable, one of the largest DAF managers, reports accounts valued at $100,000 or more granted an average of $13,841 while accounts valued at less than $100,000 granted an average of $3,422.
Fidelity Charitable, the country’s largest DAF manager, reports its average DAF account granted $4,138 and the average account made 8.3 grants in 2014.
Myth 4: DAF granters prefer to remain anonymous.
Vanguard Charitable reports that 95 percent of its grantmakers share their name with the charities they support. Schwab Charitable, another large DAF management organization, says that 97 percent of its grantmakers share their name. Fidelity Charitable reports that 92 percent of its grantmakers provide information for nonprofit acknowledgment. This means that charities are able to continue to cultivate and steward these donors.
Myth 5: DAFs can be ignored as a passing fad.
DAFs have been around for 84 years. Following the creation of the Fidelity Charitable Gift Fund in 1991, DAFs really began to gain popularity. In 2014, DAFs held $70.7 billion in assets, an increase of nearly 24 percent compared with the previous year. DAFs are not a fad; they are a growing form of philanthropy for those interested in endowed giving but who do not have the resources or interest in establishing a private foundation.
So, what can you do to dive into the DAF pool? Here are six tips: