Posts tagged ‘Donor Advised Fund’

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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December 8, 2017

5 Mistakes that Could Cost You Year-End Donations

As year-end approaches, you are probably working feverishly to raise as much money as possible for your nonprofit organization. Unfortunately, you might be making some mistakes that could cost your charity enormous sums of potential donations.

Here are just five common ways you might unknowingly short-change your organization at this special time of year:

1.  Appeals by the Numbers.

Many of the year-end appeals that I receive focus on numbers. Often, the number is “31,” as in December 31. Other numbers tout the volume of people served or the amount of a challenge grant. As I wrote last week, numbers can tell part of an organization’s story; however, numbers can’t tell the full story.

For the most effective appeals, you will want to engage hearts and minds. While some numbers can be meaningful, telling an individual story makes your nonprofit’s work more relatable and easier to understand. Individual stories are also far more likely to engender an emotional response.

The Wounded Warrior Project is a great example of what I mean. The organization could tell us how many veterans suffer from PTSD and medical issues. The charity could simply tell us how many veterans they serve each year. Instead, the Wounded Warrior Project tells the story of a single veteran. The organization’s television appeals are mini-movies that tell us of a veteran’s war experience, the problem he or she came home with, and how the Wounded Warrior Project is improving the veteran’s life. You can watch one of the organization’s television spots by clicking here.

2.  Not Asking for Gifts of Stock and Other Planned Gifts.

If you want to maximize year-end giving, you must seek planned gifts. Planned giving allows donors to make more gifts and larger gifts than they might otherwise be able to do simply from their checkbook. This is great news for your charity. Even better news is that not all planned gifts are deferred gifts. Here are some types of planned gifts that will result in immediate cash for your organization:

Gifts of Stock. With the stock market in record territory, many Americans own appreciated securities. By contributing stock shares to your organization, a donor can make a generous gift, realize a charitable gift deduction, and avoid capital gains tax.

Gifts of Appreciated Property. As with stock, many individuals own appreciated real December 31st by TransGriot via Flickrestate, art, and collectibles that they can donate. Your organization can either use the item for mission fulfillment (i.e., a museum can accept a work of art for its collection), or the organization can sell the item and put the cash to good use. You’ll just need to be clear with your donor about which option you intend to exercise.

Gifts from Donor Advised Funds. An increasing number of Americans have established a DAF. Be sure to remind your donors that they can advise that a gift be made to your charity from their DAF account.

IRA Charitable Rollover. Since the U.S. Congress has made the IRA Charitable Rollover permanent, individuals who are age 70.5 or older can donate up to $100,000 from their IRA each year without having to recognize it as income.

Year-end is also a good time to ask for deferred planned gifts such as Gifts in a Will, Beneficiary Designations, and Trusts.

You can read more about planned giving options by clicking here.

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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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June 10, 2013

Special Report: Fidelity Charitable Provides Insights about DAF Donors

Fidelity Charitable, an independent public charity that sponsors the largest Donor-Advised Fund program in the US, has issued a new report, Fidelity Charitable Giving Report 2013: A Look at Fidelity Charitable Donors, Who They Are and How They Give.

The report provides fundraising professionals with insights that can help them better tap into the DAFs of their supporters and potential supporters.

Here are some factoids from the report:

Fidelity Charitable has over 94,000 donors connected to more than 57,000 giving accounts.

The average age when a donor establishes a DAF at Fidelity Charitable is 54.

The median Fidelity Charitable giving account balance is $14,450.Fidelity Charitable Giving Report 2013

Nearly 40 percent of Fidelity Charitable donors have maintained a giving account for more than 10 years.

Over 54 percent of contributions to Fidelity Charitable giving accounts were in the form of public or private securities in 2012.

The average number of grants from Fidelity Charitable giving accounts numbered just over seven in 2012.

The average grant from a Fidelity Charitable giving account was nearly $3,800 in 2012.

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