Posts tagged ‘DAF’

September 18, 2020

Should You Forget about Planned Giving as 2020 Closes?

Garvin Maffett, EdD, a strategic consultant in the nonprofit sector, recently asked the members of the CFRE International Network on LinkedIn:

What’s on the horizon for Gift Planning during this uncertain time in our economy?”

It’s a good question, and I thank Maffett for starting a needed discussion. Some fundraising professionals have wondered whether they should rollback planned gift marketing during the pandemic, or whether they should boldly engage in more robust charitable gift planning efforts.

My simple answer is this: You should definitely NOT forget about planned giving as 2020 draws to a close. While the economic future is definitely uncertain, now is a fantastic time for charitable gift planning. Let me explain.

The stock market, while volatile, continues on an upward trajectory. Most Americans own stock. Many of those who own stock have seen appreciation this year. This means there is a great opportunity for you to secure gifts of appreciated stock for your organization.

Motivated by the coronavirus pandemic, many more people have chosen to write a Will. With more people making end-of-life plans, there is an opportunity to encourage them to include a gift to your charity in their Wills.

As the COVID-19 pandemic has people contemplating their own mortality, life insurance sales have increased. This presents you with an opportunity to encourage beneficiary designations for your nonprofit.

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April 14, 2020

10 Fundraising Strategies for Complex & Major Gifts During COVID-19

The following guest blog post is from philanthropy researcher Russell N. James III, JD, PhD, CFP®. He originally posted it on LinkedIn, and I’m reposting it here with Russell’s kind permission. I’m reposting the piece because of the enormous importance of the subject and the valuable information it contains.

Engaging donors in planned-giving conversations is still possible during the coronavirus pandemic. Last week, Russell and I shared our FREE whitepaper “Legacy Giving: The Best of Times or the Worst of Times?” Now, I want to share Russell’s 10 charitable planning strategies you should keep in mind when seeking complex and major gifts during these challenging times:

 

The market went down. A lot. The economy is temporarily frozen. Unemployment may increase dramatically. In the past, all of these things have been bad for charitable giving. We can’t control that. So, what can we control? What strategies make sense for fundraising, in particular for complex and major gifts?

Here are ten charitable planning concepts to keep in mind.

1.    Crisis is the time to show support

A social/friendship/family relationship encourages sharing. A transactional/market/exchange relationship does not. We see this in fundraising experiments where family language (simple words and stories) consistently outperforms formal language (technical words and contract language). One of the defining moments that identifies a friendship relationship, rather than a transactional relationship, is during a crisis.

In our personal lives, we know this. When you might be in trouble, a good friend is one who reaches out to help. A friend visits you in the hospital. A friend comes to the funeral with you. A friend listens whenever trouble strikes. In time of crisis, reaching out with concern, help, or even a relevant gift reinforces this social/friendship/family type of relationship.

Ideally, the first contact with donors in a time such as this should begin with concern. Are you OK? Do you need anything? Can we help? Later, we can return to the typical donor-charity dynamic. (If you represent a cause related to public health or COVID-related assistance, that return may happen more quickly.) But, first we want to show friendship-like support during a time of crisis.

2.    The first giving conversations should be with DAF-holders

Requests made to donors with funded Donor Advised Funds will be successful earlier than requests made to others. During times of downturn and uncertainty, people are more likely to hold tightly to their wealth. This drives down charitable giving. But distributing funds already in a DAF doesn’t affect personal financial security.

During the last major economic downturn, many private foundations temporarily increased their distributions to help soften the blow for their grantees. The same reasoning can apply to individual donors who have already funded their DAFs. Due to tax planning strategies, many may have placed multiple years’ worth of future expected donations into a DAF. Given the current crisis, it makes sense to consider this as a time to empty those accounts earlier than originally planned.

3.    One-time special requests work, but be careful with a crisis

In fundraising experiments, people are more willing to donate in response to a special, one-time need than for ongoing needs. An appeal for one-time needs that arise as a result of the current turbulence may be particularly effective. In experiments, people respond more to appeals during a time of crisis. We are all sharing this experience together. We can work together to help overcome the effects of this hit.

However, it is important in such appeals to identify the crisis as a crisis for beneficiaries or for the cause, but not an organizational crisis. Projecting organizational instability might help get the $50 gift today, but it will come at the cost of the major donation later down the road. Major philanthropic investments don’t go to unstable organizations.

4.    Use planned gifts as your “Plan B”

During times of downturn and uncertainty, people are more likely to hold tightly to their wealth. Planned giving opportunities can help “lean into” this uncertainty.

Estate gifts take place only after the donor no longer needs the money personally. They can also be revocable. They can be a percentage of the estate, and thus can vary in size with financial ups and downs. These percentage gifts are actually much better for charities because they usually end up being much larger. (Fixed dollar gifts tend not to get updated for inflation.)

Irrevocable planned gifts can also help with financial uncertainty. These typically give the donor lifetime income or lifetime use of the donated property. Thus, the gift can be made while still protecting the financial security of the donor.

If a donor needs to back away from a commitment or feels that a future ask is too daunting, consider planned gifts as a “Plan B”. A response to such a refusal might include revocable or irrevocable planned gift options.

I certainly understand your concerns. I know others in your same situation who have decided to move their commitment into an estate gift instead. This provides flexibility with no upfront cost. There are even ways to do it that provide tax benefits. Would you be interested in learning more about these options?”

[This is followed by discussion of: 1) Gift in a will. 2) Beneficiary designation on an IRA/401(k), avoiding income taxes that heirs would otherwise have to pay. 3) Retained life estate, creating an immediate income tax deduction, discussed below.]

I certainly understand your concerns. I know others like you who have decided instead to make a gift that gives them lifetime income. With interest rates being so low and the market being so volatile, many people like the fixed payments coming from a charitable gift annuity. Would you like to learn more about this?”

5.    A charitable gift annuity as a two-stage gift

For those representing stable institutions offering Charitable Gift Annuities (CGAs), this may become a particularly attractive gift. A CGA usually trades a gift for annual lifetime payments to the donor (or donor and spouse). During times of uncertainty, the guarantee of fixed payments from a stable institution can be attractive. Following the last dramatic drop in the market in 2008, some large, stable organizations reported receiving exceptionally large CGAs. These very large gifts would normally have been structured as a Charitable Remainder Trust. But during extreme volatility, donors instead preferred the certainty and stability of payments guaranteed by the organization rather than payments tied to investment returns.

A charitable gift annuity can sometimes be presented as a two-stage alternative when uncertainty prevents a normal gift from being made.

I certainly understand your concerns. Another donor like you was in your same situation and she decided to protect against all this volatility by making the gift in two stages. First, she made a gift that gave her annual payments for life. If things go downhill, she has that income. But, if everything turns around and she ends up not needing the extra money, then she can donate those future payments as a second gift.”

Section II: Wonky Charitable Tax Planning Opportunities

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November 15, 2019

Fundraising Reality Check: 5 Things You Need to Know

A number of myths continue to persist in the fundraising world. While I can’t debunk all of them here, I can deliver a reality check for five important items that I’ve encountered recently when talking with fellow fundraising professionals:

Myth 1: Most People Do Not Own Stocks

Reality Check: The fact is that a majority of Americans own stocks in one form or another. Gallup found that 55 percent of Americans have stock market investments. The greater one’s income, the more likely they are to own stock.

While the stock markets remain volatile, they continue to set new records. In other words, many charity donors own appreciated securities. Under the current federal tax code, anyone can benefit by contributing appreciated stock to a nonprofit organization. That’s because donors of appreciated stocks can avoid paying capital gains tax even if they are non-itemizers who take the standard deduction.

If you’re not asking your prospects and donors to donate appreciated securities, you’re not serving them well and you’re missing out on donations that could be quite significant. So, be sure to let people know that your organization accepts stock gifts, what the benefit is to donors of contributing stocks, and how they can gift stocks.

Myth 2: Giving Tuesday Will Help You Raise Tons of Money

Reality Check: I’m not opposed to #GivingTuesday. My problem with it is that many charities invest an amount of staff and budget resources that will never be justified by the return. In 2018, US charities raised $380 million, reports the Nonprofit Source. For perspective, that’s just 0.089 percent of overall philanthropy for the year. Furthermore, while 63 percent of Giving Tuesday donors give only on Giving Tuesday, we really don’t know if that’s a correlation or a causality; many of those donors might have given anyway on another day.

If you’re going to implement a Giving Tuesday appeal, do it the right way:

  • Have realistic expectations and invest resources accordingly.
  • Remember that a date on the calendar is not a case for support. Don’t ask people to give to your organization just because it’s Giving Tuesday. Let them know what problem their gift will address.
  • Have a thank-you and stewardship plan in place if you want to retain and eventually upgrade Giving Tuesday donors.

Myth 3: Charities Can Ignore Donor-Advised Funds

Reality Check: Okay, charities can ignore Donor-Advised Funds. However, they should not. DAFs accounted for 12.7 percent of overall philanthropy in 2018 compared with just 4.4 percent in 2010, according to The National Philanthropic Trust’s The 2019 DAF Report. In other words, DAF grant payouts totaled $23.42 billion. Total DAF charitable assets were $121.42 billion and climbing. The number of DAF accounts in 2018 was 728.563, a 55.2 percent increase over 2017.

The simple fact is that DAFs continue to grow in significance year after year. More and more donors are creating DAFs. You need to make it easy for people to recommend grants to your charity. You need to properly steward DAF donors and those who recommend DAF grants. You need to keep track of which of your supporters has established a DAF. You need to remind people that, if they have a DAF, they can recommend your charity for a grant.

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June 20, 2019

I Told You So: Charitable Giving is Up!

Most charity pundits, mainstream media, and press serving the nonprofit sector got it wrong. Sadly, none of them is admitting their mistake, and many are continuing to advance a false narrative. However, I always told you the truth, and I’ll continue to do so.

I’ve often encouraged you not to overuse statistics in your appeals. But, we can all certainly benefit from reading lots of illuminating statistics.

In 2017 and 2018, most pundits and the media were convinced that the Tax Cut and Jobs Act would result in up to a $21 billion decrease in philanthropic giving. In January 2018, I joined a tiny group of professionals who predicted the decrease in giving would be far less than that and giving might actually increase. This was not a guess on our part, but a well-educated expectation based on research, experience, and observation.

Now, with the release of Giving USA 2019, we know who was correct.

Overall, philanthropic giving in constant dollars INCREASED by $2.97 billion (0.7 percent) between 2017 and 2018, and now stands at $427.71 billion, the highest level of all time. Relative to Gross Domestic Product, giving remained at 2.1 percent, which is greater than the 40-year average of 2.0 percent.

Despite the generally good news, the philanthropy scene is not entirely positive. When adjusting for inflation, giving in 2018 did decline by 1.7 percent, though that was much less than the doom and gloom estimates. Furthermore, giving by individuals as a share of overall philanthropy accounted for 68 percent; this is the first time since at least 1954 that it has fallen below 70 percent. In 2018, individual giving fell by 1.1 percent in constant dollars.

While the new tax code likely had an effect on charitable giving, we need to be careful not to overstate its impact. A number of factors have influenced giving:

New Tax Code. All or part of the decline in individual giving in 2018 could be due to donors taking action in advance of the tax law change. We saw this in 1986 when there was a spike in charitable giving in advance of the Reagan tax cuts in 1987.

In 2017, many donors likely front-loaded their philanthropic giving since they would no longer be able to deduct gifts beginning in 2018. In addition, many donors chose to bundle their philanthropy by contributing to Donor-Advised Funds at record levels in 2017. Together, these two factors might explain the 1.1 percent decrease in individual giving in 2018 compared to a 5.7 percent increase in 2017. If not for the new tax rules going into effect in 2018, some of those 2017 donations might have been made in 2018 instead.

The tax code might also affect giving in other ways that we just don’t see clearly at this point. Just as we had to wait until 1988 to see giving normalize following the Reagan tax cuts, we may need to wait another year or two to understand the full effect of the current tax code.

Decline in the Number of Donors. Since 2001, the percentage of US households contributing to charity has fallen steadily from a high of 67.63 percent to 55.51 percent in 2014, according to data from the Indiana University Lilly Family School of Philanthropy’s Philanthropy Panel Study. In other words, the new tax code is not responsible for a sudden decline in the number of donors. This trend has been going on for years.

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January 29, 2019

Are Donors Abandoning You, Or Are You Abandoning Them?

Donor retention rates for both new and renewing donors remain pathetically low and, actually, continue to decline. There are a number of reasons for this, many of which I’ve addressed in previous posts. However, just recently, I learned of a situation I had not considered previously. So, I want to make sure you’re aware of the problem and understand how to easily fix it.

I heard about the problem from The Whiny Donor, a thoughtful donor who uses Twitter to generously provide fundraising professionals with feedback and insights from a nonprofit-contributor’s perspective.

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The Whiny Donor wrote, “In December, we gave through our DAF to several nonprofits that we had supported for many years with direct donations. I suspect several of them won’t have the capacity to make the connection, and will now consider us lapsed donors…. Which means they will change the way our relationship moves forward. They will think we didn’t support them; we will think we have. It’s a stewardship conundrum.”

As a philanthropic tool, Donor Advised Funds offer people a number of financial advantages compared to giving directly to nonprofits or not giving at all. At the end of 2018, we saw significant growth in the number and size of DAFs, in part, as a result of the new tax code.

While donors can benefit in a variety of ways from using a DAF to realize their philanthropic aspirations, the use of DAFs can create a stewardship challenge for charities:

  • Should the charity thank the DAF or the individual supporter?
  • Who should the charity continue to steward, DAF or individual?
  • How should the charity track and report the donation?
  • Does the charity’s software help or hurt these efforts?

The Whiny Donor worries that charities will recognize the DAF and ignore the role she and her husband played in securing the gift. She fears some organizations will assume she has abandoned them when, in fact, she has not.

This is a very real concern. As DAF giving becomes more common, I’ve heard many examples of how nonprofit organizations have stumbled. Some thank the individual, but not the DAF. Some thank the DAF, but not the individual. Some thank both the individual and the DAF. Some don’t thank either or thank in the wrong way.

Here’s what you need to know: The DAF is the donor. The individual is not the donor when the gift comes from a DAF. Because of the way DAFs are structured and the laws regulating them, individuals can only make a contribution recommendation to the DAF administrator (e.g., Fidelity Charitable, National Philanthropic Trust, Schwab Charitable, etc.).

Because the DAF is the donor, you should thank and send receipts to the DAF. However, as The Whiny Donor suggests, that’s not good enough. You should also thank the individual who recommended the DAF gift.

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August 17, 2018

It’s Time to Stop Whining about Donor-Advised Funds!

The New York Times whined recently about Donor-Advised Funds in an article carrying the headline, “How Tech Billionaires Hack Their Taxes With a Philanthropic Loophole.”

While you personally might not complain about DAFs, you can sure bet some of your organization’s senior staff and board members may line up with some of the experts cited in the misleading piece in the Times.

I’m here to tell you and others that it’s time to stop whining about DAFs. Regardless of how you feel about them, DAFs have been with us since the 1930s, and they’re not likely to go away anytime soon. So, you and your organization will be far better off if you understand how to benefit from DAFs.

I’ll give you six tips. However, as a former newspaper editor, I feel compelled to first bust the myths peddled by the Times.

“Billionaires.” The Times seems to suggest that DAFs are a tool being used by and only available to billionaires. David Gelles writes, “DAFs allow wealthy individuals like Mr. Woodman to give assets — usually cash and stock, but also real estate, art and cryptocurrencies — to a sponsoring organization like the Silicon Valley Community Foundation, Fidelity Charitable or Vanguard Charitable.” While many wealthy individuals establish DAF accounts, so do middle class people. Some sponsoring organizations require just a $5,000 contribution to create one.

As a result of the new tax code, some donors will no longer itemize deductions on their tax returns because of the increase in the standard deduction. However, if they are close to being able to itemize beyond the standard deduction, some will choose to bundle their charitable giving. In other words, they’ll give in some years but not others. In the years they give, they’ll itemize. One way some of these donors will give is to establish a DAF with a large contribution in a given year. Then, they’ll continue to support their favorite charities each year by recommending annual grants from their DAF account.

The bottom-line is that DAFs are not just for the super-wealthy.

“Hack Their Taxes with a Philanthropic Loophole.” The headline in the Times lets you know the reporter’s inappropriate bias right from the start. The wealthy are not doing anything cute, clever, sloppy, or nefarious by creating a DAF. Any donor who creates a DAF is simply following the clearly written provisions of the law.

If giving to charity is a “hack” in the pejorative sense, if receiving a charitable-gift deduction for donating to a nonprofit organization is exploiting a “loophole,” then perhaps we should do away with the deduction for donations all together. However, can we agree that would be stupid?

The bottom-line is that setting up a DAF is no more evil than creating a foundation or trust or, for that matter, giving directly to a charitable organization. Donors who engage in careful tax planning have more disposable income or assets, which has historically led to more giving.

“Charities Can Wait for Funds Indefinitely.” Gelles writes, “So while donors enjoy immediate tax benefits, charities can wait for funds indefinitely, and maybe forever.” He goes on to state that foundations are required to give away five percent of their assets each year, but DAFs have no similar requirement. That’s true, but…

While DAFs are not required to make minimum distributions, the average DAF distributes far more than the minimum required of foundations. According to the 2017 Donor-Advised Fund Report, compiled by The National Philanthropic Trust, DAFs contributed 20.3 percent of assets to charities in 2016, the most recent year for which data is available. For the third year in a row, growth in grants from DAFs has outpaced the growth of giving to DAFs.

Why would a donor just let money sit in a DAF account “forever” after setting up the irrevocable account? While the sponsoring organizations would love that – they earn fees for managing the accounts – a donor derives zero benefit from warehousing money in a DAF, beyond the initial deduction. Instead, donors benefit when that money can be put to good use. Furthermore, they’ll benefit when the recipient charities recognize their support and express their gratitude.

The bottom-line is that most donors have no interest in warehousing their money. They want to use their DAFs to help build a better world. It’s the job of fundraising professionals to inspire these people to recommend grants from their DAF accounts.

“Philanthropy is Becoming Less Transparent.” The article quotes David Callahan, author of The Givers, as saying, “The world of philanthropy is becoming less transparent, and that’s not a good thing.” While I’m not really sure what point Callahan was making, the Times wants us to believe that DAFs are part of the transparency problem as people use them to hide their giving.

A few years ago, I was curious about how secretive DAF grantmakers really are. Here is what I was able to report:

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.”

The bottom-line is that when donors are inspired to give through their DAF, they almost never do so secretively.

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January 12, 2018

Hang-on to the Holiday Spirit with FREE Gifts and Resources to Raise More Money!

For most of us, whether we observe Hanukkah, Christmas, or just the New Year, the holiday season is an uplifting time full of joy. However, the same cannot always be said of the post-holiday period, according to Linda Walter, LCSW. Her article in Psychology Today cites many reasons for the post-holiday blahs, for some, even depression.

As an antidote for the after-holiday letdown, I want to share several free resources with you that just might help you keep the holiday spirit going while also helping you raise more money in 2018.

The Donor-Advised Fund Widget. For starters, let me tell you about the Donor-Advised Fund Widget created and offered free-of-charge by the generous folks at MarketSmart. This useful, free gift will help you continue to celebrate the season and raise more money for your nonprofit organization.

When it comes to fundraising, a general rule is: Make it easy for people to give your organization money. You probably already do this in a number of ways. For example, your organization probably allows donors to place gifts on their credit card, mail a check in a business reply envelope you supply, give online, or contribute when they buy products (e.g., Amazon Smile).

So, why not also make it easy for someone to recommend a donation from his or her DAF account?

Rather than viewing DAFs as enemies that divert vitally needed funds away from charities, nonprofit organizations should view DAFs as a great fundraising opportunity. Unfortunately, the problem is that nonprofits have not made it easy for people to donate from their DAF accounts…until now.

Greg Warner, Founder and CEO of MarketSmart, says:

Amazon is successful primarily because they make it easy to buy stuff. Similarly, if nonprofits just made it easy to transfer DAF money, the bottleneck would get un-clogged. But no one was stepping up. So I did!”

The DAF Widget goes on your organization’s website. Your donors with DAF accounts then can easily find their account management company from a comprehensive list of over 800 service providers. Then, they simply click to go directly to their DAF management company’s website where they can enter the relevant information to make a donation recommendation for your organization. To see the widget live, visit the Navy-Marine Corps Relief Society website by clicking here.

DAFs are an increasingly valuable source of donations for charities. Consider the following market-wide insights from The National Philanthropic Trust 2017 Donor-Advised Fund Report:

  2012 2016
Number of DAF Accounts 204,704 284,965
Total Assets in DAF Accounts $44.71 billion $85,15 billion
Grants from DAF Accounts $8.5 billion $15.75 billion
Ave. DAF Asset Size $218,413 $298,809

To put the above figures into context, non-corporate private foundations gave $45.15 billion to charities in 2016. By contrast, donations made from DAFs totaled $15.75 billion that same year, equating to roughly one-third (34.8 percent) of the estimated amount granted by non-corporate private foundations.

In other words, DAF donations represent a significant and growing source of gifts for nonprofit organizations. However, to get your share, you need to make it easy for people to recommend donations from their DAF accounts. That’s why MarketSmart created the free DAF Widget.

You can learn more about the DAF Widget and claim yours by clicking here.

There is just one catch, if you want to call it that. The DAF Widget is in its Beta Edition. So, MarketSmart is looking for feedback, either directly or through comments below. Then, Greg promises to invest more time and money to make the DAF Widget even better. So, if you use the DAF Widget, please let us know how you think it could be made easier to use and more effective.

Here are seven additional resources for you to help get 2018 off to a great start:

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November 8, 2016

Are You Forgetting Something as Year-End Approaches?

It’s that time of year once again. #GivingTuesday and December 31 are fast approaching. All charities are looking for year-end donations. However, are you forgetting something important?

If you want to maximize year-end giving, you must seek planned gifts. Remember, not all planned gifts are deferred gifts; many are current contributions. Here are some types of planned gifts you should be asking for, even if you don’t have a formal planned giving program:

Gifts of appreciated stock or property (i.e.: real estate, art, collectibles, etc.):

By making a donation using appreciated stock or personal property, a donor can avoid capital gains tax and receive a charitable gift deduction. Because over half of Americans own stock (Gallup) and because the stock markets are at or near record highs, now is a great time for donors to contribute appreciated securities. Likewise, real estate values have generally seen significant rebounds since the Great Recession, meaning real estate gifts are an excellent option for some donors.

Gifts from a Donor Advised Fund:

Many donors have established a Donor Advised Fund. In 2014, there were over 238,000 Donor Advised Funds (National Philanthropic Trust, Donor Advised Fund Market Report 2015). DAFs “account for more than three percent of all charitable giving in the United States.”

pot-of-goldIf you’d like to learn more about how DAFs work, you can download the free FAQ sheet from DAF Direct by clicking here.

If you know that a donor has established a DAF, ask him to designate your charity for a grant. In your newsletter, include a story about a supporter who has given through her DAF. On your website, include a Donor Advised Fund widget to make it easy for your donors to designate a gift to your charity.

To see how International Planned Parenthood Federation / Western Hemisphere uses the DAF Direct widget, click here. To see how the UNICEF United States Fund has deployed the widget, click here. For information about how to get the Donor Advised Fund widget for your organization’s website, click here.

Gifts from an IRA Rollover:

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May 18, 2016

New Donor Advised Fund Legislation Introduced in Congress

Late last year, the Federal Government made the IRA Charitable Rollover permanent. Now, just months later, Congress is considering a bill that would expand the IRA Rollover provision. If passed, the measure would allow donors to contribute IRA dollars to a Donor Advised Fund in addition to 501(c)3 nonprofit organizations.

Arc of Washington by Eric B Walker via FlickrIn the US Senate, Sen. John Thune (R-SD) introduced S-2750, Charities Helping Americans Regularly Throughout the Year Act. In the US House of Representatives, Rep. George Holding (R-NC) introduced a companion bill: HR-4907, The Grow Philanthropy Act of 2016.

(Just as an aside, I have to ask: Who came up with these bill names? I’m not sure if they suffered from too much creativity or not enough. In any case…)

The Senate bill has been assigned to the Finance Committee while the House bill has been sent to the Ways and Means Committee. At this point, it’s unclear whether either bill will receive a floor vote. And, if a vote is held, it’s uncertain whether the measure would pass. You can track the progress of the bills at GovTrack.us.

Even if the bills do not pass this year, it’s doubtful the matter will be dropped. Remember, it took many years before the existing IRA Charitable Rollover became permanent. So, unless the new measure passes this year, I think we can expect the matter to come up again.

Some fundraising professionals believe that DAFs are good for the nonprofit sector because they encourage more giving. Others believe that DAFs are harmful because they divert funds away from operating nonprofit organizations. Still others believe that it doesn’t matter what we think about DAFs because they’re here to stay.

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November 20, 2015

Stop Ignoring This Amazing Source of Contributions

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.

Pile of Cash by Pictures of Money via FlickrDonors 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:

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