Donor-Advised Funds: What You Need To Know

Trying economic times call for creative fundraising strategies.

There’s a method of charitable giving that has increased 400% in the past ten years. Much of that growth has taken place in the past two!

We’re talking, of course, about Donor-Advised Funds (DAFs). 

Here are some fun facts about DAFs: 

Fact: Donor-Advised Funds are growing in popularity.

Fact: Donor-Advised Funds are for everyone, not just the well-heeled. 

Fact: Donor-Advised Funds are particularly effective during times of economic uncertainty.

What Is a Donor-Advised Fund? 

Donor-Advised Funds are investment accounts with a philanthropic angle. The donor receives an immediate tax break. The money grows in the fund, earning interest, until it’s time for distribution to deserving nonprofits. The timeline is flexible – money might stay in the fund for days, weeks, even years. And donors can add to the fund at any time. Sounds pretty good, right? We think so.

Once upon a time, DAFs were thought of as simply a means for the wealthy to reduce their tax burden. But since they’re simple to set up, and don’t require a huge initial investment, they’re becoming more and more popular with average folks.

How Is the Money Distributed?

The donor recommends (advises) which charities they want to support, and presto, that money is sent to the org. Simple as that!

How Can I Get My Nonprofit On The Radar?

Donor-Advised funds pave the way for a mutually-beneficial partnership between nonprofits and donors, particularly when the donor has a fiduciary obligation (someone legally required to act in their clients’ best interests, i.e. accountants, tax preparers, wealth management professionals). So as a nonprofit leader, these financial experts are the ones you want to target. Foster good relationships with them; then ask them to talk about YOU to their clients. (Remember: Referrals from financial advisors make up a sizable portion of brand new DAF donors.) 

The thing about financial advisors: No matter where they’re located, or what firm they’re with, or how many years of experience they have – their message is pretty much the same:

“We’re going to make (or save) you money.” 

“We’re going to make your money work for you.” 

“We’re going to build your wealth.”

Since these messages don’t change much throughout the finance industry, supporting nonprofits is a great way for folks with fiduciary responsibilities to drum up good publicity for themselves. See how a sort of symbiotic relationship is created? Nonprofit gets monetary support; financial advisor gets good PR. Win. Win!

Do any of your board members have fiduciary obligations? Is anyone on your board a financial advisor? Life insurance agent? Mergers and acquisitions attorney? These are the folks who can get you closer to the folks who have the means to start a fund benefitting your nonprofit.

Leave a Legacy

Want to make sure the causes you care about will remain funded after you’re gone? You can accomplish this by creating a DAF with a succession plan. You make your wishes known and you decide who’s in charge after you pass. Maybe you want some of the nonprofits you support to receive a donation every month; maybe you want to dole out a bunch of gifts on Giving Tuesday or in December. A DAF ensures you will leave a meaningful legacy. What a comfort it is, knowing the people and the causes you care about will be taken care of after you’re gone!

Younger Donors Are Joining the DAF Party

No doubt, legacy giving is more front-of-mind with boomers and middle-aged donors, but the demographics of folks who are getting involved with DAFs are trending younger and younger. In 2014, only about 6% of donor-advised funds were started by charitably-minded millennials; by 2019, about 13% of donor-advised funds were started by millennials. Say what you want about millennials (okay, Boomer?); their generosity is unprecedented and commendable! 

From 2016-2022, average household giving from millennials increased 40%, while both Gen X’s and Boomers’ overall giving trended down. (Perhaps the older generations have something to learn from the millennials after all, hmmm?) 

By the Numbers

Let’s take a final look at DAF impact by the numbers: 

*In 2022, nonprofits received $45 billion dollars directly from grants that came straight from donor-advised funds. 

*Donor-advised funds are currently holding $243 billion dollars that’s immediately available for nonprofits.

*You read it at the beginning, but it bears repeating – charitable giving through donor-advised funds has increased 400% in the past decade.

Join the DAF Party!

Did you know?? You can start your very own Donor Advised Fund with as little as $5,000 dollars. Maybe you have friends and family members who would be happy to chip in a small (or not so small!) donation to help grow your fund. Maybe a DAF would be a good place to park that unexpected work bonus. Maybe you’d like to have something to talk about at parties – this really cool thing you did to help out those less fortunate. Pretty much anyone can start a DAF; perhaps pretty much everyone should! Got any questions? We’ve got answers – reach out!