Donor-Advised Funds: What Do They Mean for Your Organization?

The Giving Institute and Giving USA Foundation recently brought together a group of expert panelists to discuss donor-advised funds (DAFs), the fastest growing charitable giving vehicles in the US. The panel included the president of Fidelity Charitable Trust, the executive director of the Texas Community Fund (TCF), a donor who maintains a DAF with TCF, and a professor of Economics at Indiana University’s Lily Family School of Philanthropy. Their conversation marked the launch of the Giving USA Special Report The Data on Donor-Advised Funds: New Insights You Need to Know. This report, researched and written by the Indiana University Lilly Family School of Philanthropy, examines the data behind DAFs with a particular focus on what types of organizations benefit most from their disbursements. Although DAFs are a hot topic in philanthropy, there is limited aggregate data regarding their recipients, so this is a particularly exciting study for our industry.

A DAF is a philanthropic fund maintained and operated by a sponsoring charitable organization (i.e., a community fund, a national fund, or a single-issue charity). The donor establishes the fund and makes irrevocable tax-deductible contributions to it. The sponsoring organization has legal control over the funds but donors are able to make recommended grants to approved charitable organizations.

As a member of the Giving Institute, GG+A highlights some of the most compelling information from the panel and what it means for nonprofit and philanthropic leaders:

The most compelling finding of the Giving USA study was that 28% of distributions from DAFs went to organizations focused on education while 14% went to religious institutions. In contrast, overall philanthropic giving to education was only 15% while total giving to religion was 32% for the same time period:

The distribution patterns by DAFs track more closely with the trends of high-net-worth donors who tend to give a larger share of their giving to education than to religion. What does that mean for your nonprofit institution? Engage your donors in conversations about the sources of their giving and try to ascertain if they give from a DAF. Also, many sponsoring charitable organizations make philanthropic recommendations to donors based on their knowledge of the nonprofit sector. If possible, be sure to attend an education session sponsored by a foundation or find ways to connect with their staff in order to raise the profile of your organization.

Some of the most compelling information from the webcast actually came from Fidelity Charitable Trust. Fidelity is the second largest grant distributor in the country behind the Gates Foundation, having distributed over $4.5 billion to 127,000 nonprofit organizations in 2017.

Eighty-five percent (85%) of Fidelity DAF donors give to six or more charities in a single tax year.

This statistic drives home the need for nonprofits to understand and discuss the philanthropic priorities of their donors. If your organization is among six others receiving support from a donor, you want to know where you stand within order of priority. This topic can lead to a broader conversation: Is the donor willing to make your organization his/her top priority? Would they be willing to make you their top priority for the next five years (i.e., the duration of your next campaign)?

Seventy-nine percent (79%) of Fidelity donors reported that they had volunteered with the recipient organization in the last year.

This statistic drives home the value of engagement in cultivating donors. Make sure you are having conversations with your donors about whether they want to volunteer and what kind of role would be appropriate and most fulfilling for them.

Fidelity donors, on average, say 65% of their total donations are coming from DAFs.

This means that 35% of donations are being made as gifts of cash and stock, as well as through other mechanisms. Many donors distribute a standard annual amount from their DAF. Do not let that standard amount deter you from asking for a larger gift. If the gift opportunity is compelling, donors will use other sources to provide funding.

Fidelity reports the median average account balance is $19,000. Fifty-five percent (55%) of DAFs are valued at less than $25,000, and only 8% have balances over $250,000.

There is sometimes a misconception that DAFs are used exclusively by ultra-high-net-worth donors. The statistics undermine this notion. Do not assume that DAFs are exclusive to your wealthiest donors, but understand that these donors are unique. They have established DAFs because they want to take their time and make thoughtful decisions about their philanthropic impact. Respect that time and anticipate their needs. Be prepared to communicate the impact of the gift. The panelists emphasized the improved level of transparency at nonprofit organizations in recent years.

While the information from Fidelity is compelling, it should be noted that this only pertains to donors who use Fidelity Charitable Trust and not all DAF donors in the US. Indiana University’s Lily Family School of Philanthropy plans to continue their research to ascertain the information about nationwide DAF donors. There is certainly more we can learn from this research and take into consideration as we engage in best practice development work.

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