If you’ve overlooked donor-advised funds as a means of revenue in the past, consider this: This very second, over $70.7 billion in donor-advised funds are currently available in 240,000 donor accounts. Your nonprofit should take full advantage of that source of funds!
What is a Donor-Advised Fund?
A donor-advised fund is a philanthropic giving vehicle administered by a charitable sponsor. A charitable sponsor is a 501(c) (3) organization that has legal control over the donor advised fund and is responsible for operating and maintaining it. Charitable sponsors include public charities, community foundations, and charitable funds that are associated with an investment firm.
Donor-advised funds work like this:
Donors contribute to a fund held by a charitable sponsor and receive an immediate tax benefit. Over time, donors recommend grants from the fund to their favorite charities. The charitable sponsor awards grants to nonprofits recommended by donors.
Note that in addition to cash, donors can also contribute appreciated assets such as stocks, real estate, etc., which can provide substantial tax savings for the donor.
Donor-advised funds are typically invested in mutual funds or other investment vehicles that allow the value of the funds to grow over time, increasing the donor’s ultimate philanthropic impact.
- Gifts from donor-advised funds should be credited to both the charitable sponsor and the donor. When you receive a gift from a donor-advised fund, the charitable sponsor is the official donor, so you should record the gift on a donor record for that organization (e.g. Vanguard Charitable Endowment). The gift should also then be “soft credited” to the specific donor that recommended the grant. Typically, the owner of the donor-advised fund will be identified as the grant-maker, unless the donor has requested that the gift be made anonymously.
- Thank yous should come in pairs. The same way you credit both the charitable sponsor and the donor, you’ll also want to thank them both, too. Even though the donor is only soft-credited in your records, it’s very important to thank the donor who recommended the grant. Be sure to create a specific acknowledgement letter that recognizes the donor as the one who recommended your nonprofit to receive the grant.
- Donor-advised funds are often the simplest and least expensive way for donors to make a gift of appreciated assets (stocks, real estate, etc.) to your nonprofit. When these types of gifts are given from a donor-advised fund, your organization doesn’t need to have a brokerage account, have to manage selling the assets, or provide the necessary paperwork for recognizing the gift. Through a donor-advised fund, your organization will just receive a check for the proceeds. Simple as that!
- Donors may have different strategies regarding how they use their donor-advised funds. For example, some use it as a philanthropic savings account, while others use it as an immediate gift conduit and recommend grants soon after they contribute. Some donors use their donor-advised funds to give to many different organizations, and some give to just one charity. Engaging donors in a discussion about how they use their donor-advised funds can help your organization’s outreach better support those efforts.
- Donors who give through a donor-advised fund are some of your best major gift candidates. By setting up and funding a donor-advised fund, a donor demonstrates a great commitment to philanthropy and a demonstration of capacity. The average balance of a donor-advised fund is about $300,000. All those funds (and likely more) will eventually be given away.
Donor-advised funds are like savings accounts full of charitable contributions ready to be made! Make sure that your nonprofit gets the maximum benefit of this tax advantaged giving strategy. Download the complete guide to Donor-Advised Funds from DonorPerfect for tips and best practices.