Donor Advised Funds are a tool set up at a Community Foundation or a commercial vendor such as Schwab, Vanguard, Fidelity, and now Edward Jones. A donor deposits an asset into the Donor Advised Fund (DAF), receives an immediate tax benefit, and grants it to eligible nonprofits at their leisure.
In some ways, DAFs solve the “shoebox of receipts” problem for donors. When they deposit a sizable asset into the DAF, they get one receipt for the entire amount. They can then grant out smaller amounts and/or many grants from it and not need to collect additional tax receipts – they’ve already received one tax deduction receipt from the DAF administrator. So at tax time, the donor only needs to supply their accountant with this one receipt.
DAFs can also help donors who have accumulated assets other than cash. Most DAF administrators can accept a variety of assets beyond cash. Since many nonprofits, especially small ones, do not have this capacity, steering donors toward DAFs can help both the donor and the small nonprofit.
Assets that can be deposited into the DAF are only limited by law and the capacity of the DAF administrator. Most Community Foundations will accept cash, stock, land, real estate, art, jewelry, and other high value items provided that the asset can be liquidated immediately and can pass the value muster of an independent appraisal. A Community Foundation’s Gift Acceptance Policy (GAP) will outline the CF’s procedure, so please do not be shy about asking for a copy.
After a DAF is established, the donor (whether a single person, couple, family, or corporation) can “recommend” that a grant be issued from their DAF to a nonprofit. The DAF administrator will confirm the nonprofit’s existence and eligibility to receive grants and, unless illegal or potential to compromise the integrity of the DAF administrator, the grant check will be issued.
Sometimes the nonprofit receiving the grant from the DAF administrator (whether a Community Foundation or commercial administrator) will not be told the identity of the donor as we do allow a certain level of anonymity. If your charity receives an anonymous grant from a DAF administrator, feel free to ask the DAF administrator for details in order to thank the donor, but do not fret if that information is not made available to you.
When you receive a grant via a DAF and you do know the identity of the donor, please issue a thank you note right away. The receiving charity DOES NOT issue a charitable tax receipt as the donor already received one for the full amount of the asset when the DAF was established or additional deposits were made.
To the best of your ability, you then need to steward this gift by communicating how this gift was used and the result of its work in the community. Maybe this grant allowed you to increase the number of families served, or was used to hire additional staff to serve more clients, or enabled your nonprofit to build a new wing to house more rescued animals. This should be done via your usual marketing efforts as well as direct communication with the donor. If you do not know the identity of the donor, they are probably already on your mailing list or pay attention to local media, so will most likely learn of their grant impact that way.
Anonymous is not always a bad thing. Some donors are incredibly private and do not want the community to know their wealth nor their charitable passions, so be gracious, accept the gift, and talk about its impact. This might result in more gifts, larger gifts, and estate gifts, so don’t ignore the importance of anonymous donations.
Also please remember to get your board members involved in thanking donors. This doesn’t have to be formal or complicated – a simple note card or phone call will convey the message of how grateful your organization is.
Donor Advised Funds are a tremendous tool for donors and they are gaining in popularity. As a nonprofit, they can be a great tool for you, too. Learn all you can about them and don’t be shy about pursuing them as a source of income for your organization!