Why You Need to Know about Donor Advised Funds

When I was writing grants for nonprofits, every now and again someone from an organization for which I worked would throw down a letter in front of me (OK, they actually placed it down very nicely…but the former is much more dramatic). They’d ask, “Did you apply for this grant?”
 
I would dutifully (like I ever do anything “dutifully”) take a look at it and see that it was associated with a community foundation. Most times, I knew right away that we had been given a donation through a Donor Advised Fund (aka DAF).
 
Let’s be clear: I am no expert on Donor Advised Funds. But because I’ve heard about their increased popularity over the years, I wanted to know more. So, join with me and learn about Donor Advised Funds.
 
What is a DAF?
According to Fidelity Charitable, A donor-advised fund, or DAF, is like a charitable investment account for the sole purpose of supporting charitable organizations you care about. The funds are invested in stocks and bonds so that the principal can grow. The investor (the donor) directs (advises) to which organizations funds will be given.

Are Donor-Advised Funds Good for Nonprofits? adds, “Sponsors [of DAFs] include community foundations, the charitable arms of investment managers such as Fidelity and Charles Schwab, religious organizations, and universities.”
 
First, the sticker shock: While there are some financial organizations that do not require a minimum amount to start a DAF, more than likely, a donor will need $25,000 accrued to start giving donations on an annual basis.
 
That’s a lot! I can’t relate. Why should I be interested?
DAFs have seen a meteoric rise in the last few years. Between 2017 and 2021, the number of individual DAF accounts grew by 28% – nearly 1.3 million accounts.
 
In 2022, grants from DAFs totaled a whopping $45.7 billion (with a “b”) – a 28% increase from 2020.
 
No doubt there are those in your congregation or nonprofit who have established a Donor Advised Fund. Because they may be advising that some of those funds go to your organization, that’s why you should be interested.
 
Give me the basics.
Why would someone open a Donor Advised Fund?
According to Investopedia, the primary advantage of opening a DAF is that the donor can receive a one-time tax deduction without having to immediately decide who will receive the funds. Money to the DAF can be given over a number of years and with any new additional donation to the DAF, there is a tax-deduction.
 
Are DAFs a tax shelter?
I wanted to know more so I went to my local expert, Jenn Columbus who is a Philanthropic Advisor for the Oregon Community Foundation.
 
She made it clear that DAFs are not tax shelters except for a one-time deduction in the year the donor establishes a fund. And, once someone has committed money to a Donor Advised Fund, they cannot get their original investment back. Though there is a small fee to manage the fund, the DAF will accrue interest which means the donor can continue to give grants to their designated charity. DAF donors give on average a 20% payout annually compared to foundations who give a little more than 5%.
 
Recognizing DAF donors
If someone is looking for recognition for their DAF donation, a DAF may not be for them. A donor cannot request recognition for their donation. However, the organization accepting the gift may provide public acknowledgement with the condition that the community foundation is also recognized.
 
How does this work for a church?
According to Columbus, the person who sets up a DAF can ask that their funds be given to their congregation over a multi-year period, annually, or monthly. FYI: Per IRS guidelines, you cannot use DAFs to make a pledge.
 
Does a donor have to give grants once the DAF is set up?
Yes and no. This is up to the place where the donor initiated the DAF. For example, the Oregon Community Foundation has made it “a policy that grants from an advised fund are made at least once every three years.” OCF has made it clear that they, as a community foundation, exist to distribute funds to the community. Their donors are not allowed to just sit on the money – it needs to do good and get to organizations that need it.
 
Are their DAF naysayers?
Are you kidding? Of course! Vu Le, the Nonprofit AF blogger, is not a fan because some DAF sponsors do not require funds be distributed. As a result, many people are holding on to their money through DAFs rather than giving it to nonprofits who are in immediate need of the funds. How’s this for his provocative funny/not funny blog title: Slimier than a banana slug and not nearly as cute: How donor-advised funds threaten our democracy.
 
Now that you know, what should you do?
You don’t have to do anything. But, if you want to be a potential DAF beneficiary, you should have a working knowledge of DAFs and how they might help your congregation or organization. When someone comes to you and says, “I’ve established a Donor Advised Fund and I’d like your fabulous church or nonprofit to be the beneficiary,” you’ll be able to smile and say, “Terrific! I know a little about DAFs. Tell me more.”
 
Friends, like them or not, Donor Advised Funds are growing in popularity. They may seem like a distant-reach from your ministry and mission and yet one more thing (sigh) to learn about. But hear what Henri Nouwen says in The Spirituality of Fundraising (try substituting the word “fundraising” with “Donor Advised Funds”):

Fundraising is a very rich and beautiful activity. It is a confident, joyful and hope-filled expression of ministry. In ministering to each other, each from the riches that he or she possesses, we work together for the full coming of God's Kingdom.

May it be so!
 
Photo credit: Mylene2401 at Pixabay.

Cesie Delve Scheuermann (pronounced “CC Delv Sherman,” yes, really) is a Stewardship Consultant for the OR-ID Annual Conference. She is also a Senior Ministry Strategist with Horizons Stewardship. For 25 years, while working as a volunteer and part-time consultant, she has helped raise over three million dollars for numerous churches and non-profit organizations. Love camp? Love theater? Then the new mockumentary “Theater Camp” is for you. Two big thumbs up!
 
You can reach Cesie at inspiringgenerosity@gmail.com, at CesieScheuermann.com, or at cesieds@horizons.net. Want to schedule a meeting? She’s got you covered!
 
Schedule a meeting now.
 
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