Donor-Advised Funds (DAFs) are growing in popularity here in the United States and they are a great way to accomplish philanthropic goals. Many people are using DAFs for a few key reasons. One reason is that they are relatively simple to set up. Working with a community foundation, such as The Community Foundation Serving Greeley & Weld County, the Rose Community Foundation, or The Denver Foundation, you can easily set up a DAF to focus on whatever giving priority you’d like. A community foundation is a philanthropic organization that is set up to make grants in a particular area, and one of their functions is to act as a warehouse of pooled, invested funds. A typical community foundation can start a DAF with as little as $5,000 – $10,000 and they do not require nearly as much management as a family foundation.
Another benefit to DAFs is that they enable a donor to manage taxation events now, but distribute the funds at a point in the future. For example, if a donor were considering selling an asset subject to capital gains taxes, she could create a DAF and shield from taxation a portion (or all) of the gain. DAFs are not required to distribute 5% of their assets each year like family foundations and so the donor can take some time to do research and make charitable gifts over time.
Donor-Advised Funds are also a good vehicle for maintaining privacy. Have you ever made a gift to one organization and then received requests from 10 other organizations? A Donor-Advised Fund can make gifts without disclosing the name of the donors behind the fund. This is attractive to some donors who choose to make their philanthropy a very private matter. Community foundation staff are very diligent about being gatekeepers for donors who ask them to play that role.
For small organizations, DAFs represent a good opportunity that is often overlooked. It is not uncommon for a small organization to receive a gift from a DAF, acknowledge the gift with a tax receipt, and let the story end there. I recommend that small organizations treat DAFs like any other donor – build a relationship. Although some donors like to use the DAF as a “firewall” to protect their privacy, that is not the case with many of them. Sometimes the donor will use their name on the fund, such as the “Mullin Family Fund.” With a little research one can often find out who is responsible for the gift. Once that info is acquired, a good start is to send a handwritten note to thank the donor and introduce yourself. Beyond that, implement your stewardship plan to maintain connection with the donor and make her aware of the impact she is making through your organization. It will make her feel good about giving to your organization, and she will want to do so again.
Whether it is a foundation, business, donor-advised fund, or church, remember that all of these entities have one thing in common: people. The strategies to engage and steward them may be a bit different but at the end of the day, people make the decision to give or NOT give to your organization. Don’t overlook donor-advised funds as ongoing donors to your program, they can be valuable allies to help accomplish your mission.
Have a great week,