YOU: “Hello! How are you doing today? So nice to hear from you!”
YOUR DONOR: “Hello! My friend just told me about Donor Advised Funds and we want to set one up. Are you able to accept funds through a DAF?”
And so goes many conversations from donors looking to take advantage of the benefits of a Donor Advised Fund (DAF). How can you best navigate the DAF world? This blog breaks down what a DAF is, what nonprofits need to know, why a donor might want to use one, and how DAFs are changing the landscape of philanthropy.
Let’s dive in.
What is a Donor Advised Fund (DAF)?
A Donor Advised Fund is a charitable investment account designed to streamline charitable donations to nonprofits. Contributions such as assets, cash, and stocks are managed by a sponsoring organization that is a 501(c)(3) and classified as a public charity. The funds donated are often invested, and the growth is tax-free.
What do Nonprofits Need to Know About DAFs?
Donor Advised Funds, or DAFs, have grown tremendously since they appeared in the 1930s and gained more traction in the 1990s. While DAFs have been around for years, they are now rapidly growing in popularity, and we see them changing the philanthropic landscape.
Donors who give through their DAF tend to be very generous. They often give consistently, and nonprofits should use this as an opportunity to create strong relationships with these donors.
For nonprofits, processing and confirming contributions made via DAFs can be challenging and administratively difficult. Many organizations that manage DAFs require nonprofits to create their own login, confirm their NFP status, and submit certain requirements just to have access to donor information—and even then, some process DAF gifts anonymously, per the request of the donor.
Each organization that manages DAFs has its own rules and guidelines the donor must follow. Your donor should be aware of what the expectations are for their own DAF. For example, gifts made through a DAF usually do not allow for multi-year pledges. Similar to a foundation, DAFs can have minimum gift allotments and are restricted to tax-exempt organizations (no gifts to individuals).
Although the administrative need to support your donor’s DAF can be a concern, nonprofits should dedicate resources to engaging these donations as they help nonprofits diversify and sustain their philanthropic support.
How to Maximize DAF Giving from Your Donors:
Make It Easy: Include a dedicated DAF giving option on your donation page.
Train your Development Team: Ensure your gift officers and donor relations staff know how DAFs work and can speak knowledgeably about them.
Stewardship: Remember that even though the DAF technically comes from a fund, not the individual, the donor is still behind the decision.
Engage with your Donors: Many of your existing supporters may already have DAFs or be ideal candidates to open one. Provide information on DAFs on your website, in newsletters, giving guides, or donor conversations.
Build Relationships with Sponsoring Organizations: Engage with local community foundations or large national DAF sponsors.
By positioning your nonprofit as DAF-friendly and building authentic relationships with your donors, you’ll be laying the groundwork for sustained and potentially transformational support.
Additional Information
What’s in it for the Donor?
DAFs have grown in popularity because they are an easy, tax-advantaged way for donors to manage their charitable giving and support their favorite causes in a greater way. When donors are looking for a quick and efficient way to make charitable contributions for tax purposes, DAFs offer a fast and streamlined solution.
Any donor who has a DAF receives an immediate tax deduction when they fund the DAF, and they have the opportunity to recommend or request DAF grants be distributed to their chosen charities.
Once the funds are received by the sponsoring organization, they are no longer owned by the donor. The donor is able to recommend and request where the grants go; however, the funds are owned by the sponsoring organization.
What’s in it for the Sponsoring Organization?
The very first Donor Advised Fund (DAF) was established in 1931 by the New York Community Trust. Since then, according to National Philanthropic Trust, over $52 billion was granted from DAFs in 2023 alone.
Sponsoring organizations who manage DAFs include the following:
Community foundations such as the Chicago Community Trust, which focus on supporting local charities and regional needs.
National DAFs such as Fidelity Charitable, which are typically affiliated with financial institutions and support a variety of organizations, often with national reach.
Single-issue DAFs, which support specific areas of interest and allow donors to direct contributions to organizations aligned with those missions.
Sponsoring organizations operate on a fee basis as a service to their clients (the donors). Their administrative resources are appealing to family foundations, high-net-worth individuals, and others seeking centralized expertise and an established process for managing philanthropy. Sponsoring organizations also facilitate fund growth, and some offer additional services like legacy planning.
Although the donor is typically the decision-maker on their fund disbursement, many sponsoring organizations offer advisory resources—particularly for clients newer to philanthropy and/or with highly specialized interests. Engaging contacts at sponsoring organizations as part of overall stewardship efforts can be an effective way to enhance relationships with current donors giving through DAFs and potentially attract new donors.
Latz & Company partners with nonprofits to transform fundraising strategies for greater impact. Let’s grow together—contact us at info@latzandco.com.