Donor-advised funds (DAFs) have become a staple of the charitable giving pie, providing a flexible and tax-advantaged way for donors to support their favorite causes.
What are Donor-Advised Funds?
Think of a DAF like a charitable investment account. Donors contribute cash, stock or other assets to a sponsoring organization (often affiliated with a financial institution) and get an immediate tax deduction.
Tax Benefits for Donors:
- Immediate Deduction: Donors can take a tax deduction in the year they contribute to the DAF, even if the funds are granted to charities later.
- Tax-Free Growth: Assets in the DAF grow tax-free, which enables larger grants at a later date.
- Flexibility: DAFs offer flexibility in timing of charitable giving, so donors can give when it's most convenient for them.
Who administers DAFs?
DAFs are usually administered by sponsoring organizations which can include:
- Community Foundations: These are public charities that support local communities.
- National Charities: Fidelity Charitable and Schwab Charitable offer DAFs to their clients.
- Religious Organizations: Many religious institutions have their own DAF programs.
How DAFs provide funding to Nonprofits:
- Grant Recommendations: Donors don't control the funds but their recommendations for grant distributions are usually honored by the sponsoring organization.
- Due Diligence: The sponsoring organization may do due diligence to make sure the nonprofit is eligible to receive grants.
- Grant Processes: Some DAFs run grant processes which are run by application or invitation.
To get funding from a DAF, in most cases you need to be a registered 501(c)(3) nonprofit organization. A number of DAFs don't accept unsolicited requests for funding, so be mindful of this.
Benefits for Nonprofits:
- More Giving: DAFs encourage giving, so you may get bigger and more frequent donations.
- Less Administration: Nonprofits don't have to manage the investment or tax aspects of the donation.
- Planned Giving: DAFs can be a gateway to bigger planned gifts from donors.
- Sometimes Recurring: If a favourable relationship is formed between the DAF and nonprofit, recurring donations can occur, sometimes over multiple years.
Finding the Right DAF Partners: A Strategic Approach
While all DAFs work under the same basic rules, some may be better for your nonprofit than others. Actively seeking out "partner DAFs" can really help your fundraising. Here's why:
- Mission Alignment: Some DAFs focus on specific causes or geographic areas. Partnering with those aligned with your mission increases the chances of getting grant recommendations.
- Community Connection: DAFs with strong ties to your local community are more likely to know about your work and support your programs.
- Proactive Grantmaking: Some DAFs actively look for nonprofits to support rather than just waiting for donor recommendations.
- Capacity Building: Some DAFs go beyond grantmaking and offer resources like workshops, training and networking opportunities to help build nonprofit capacity.
Donor Advised Funds can be a great and potentially recurring funding source for nonprofit organizations. It's worth the time to find and thoroughly research potential partners.
Disclaimer: This article is intended to provide general information about donor-advised funds and their potential benefits for nonprofits. It is not intended to provide legal, financial, or tax advice. Readers are encouraged to consult with their own professional advisors for guidance on specific situations.