What is a donor advised fund?
A donor advised fund, sometimes referred to as a “DAF,” is a charitable giving vehicle sponsored by a public charity, like the Community Foundation of Middle Tennessee. DAFs are popular because they provide a flexible and efficient way for donors to manage their charitable giving and maximize their tax benefits.
Here’s how it works:
- Contribution: The donor makes an irrevocable contribution of personal assets (such as cash, stocks, or other assets) to the DAF.
- Tax Deduction: The donor gets an immediate tax deduction for the contribution.
- Investment: The contributed assets are invested, and any growth is tax-free.
- Grant Recommendations: The donor can recommend grants to qualified nonprofit organizations at any time.
DAFs first started in community foundations more than 90 years ago. Since then, many other types of organizations—from religious organizations to universities to nonprofits established by commercial financial institutions—have become DAF sponsors.
Frequently Asked Questions
People use DAFs for several reasons, including:
- Immediate Tax Benefits: Donors receive an immediate tax deduction when they contribute to a DAF, even if they decide to distribute the funds to charities over time. This is particularly advantageous for donors who want to maximize their tax deductions in a specific year.
- Simplicity and Convenience: DAFs simplify the process of charitable giving. Instead of managing multiple donations to different nonprofits, donors can make a single contribution to their DAF and then recommend grants to various organizations over time.
- Strategic Giving: Donors can take their time to decide which nonprofits to support. The assets in the DAF can be invested and grow tax-free, potentially increasing the amount available for charitable grants.
- Anonymity: DAFs can offer donors the option to give anonymously, which can be important for those who prefer privacy in their philanthropic efforts.
- Legacy Planning: Donors can involve their family in charitable decisions and create a legacy of giving that can continue after their lifetime. DAFs can be structured to continue charitable giving according to the donor’s wishes even after their death.
Individuals, families, companies, civic organizations, and foundations can open donor advised funds.
Using the donor-provided information provided by the sponsoring public charity, thank the donor who recommended the grant to your organization. The donor already claimed their tax deduction upon making a contribution to their DAF, therefore any language implying a tax benefit should be removed from your acknowledgment. You are not sending the donor a tax receipt … just a heartfelt thank you letter!
With one exception, no. Of the 700+ donor advised funds at CFMT, only one—the Bonnaroo Works Fund—has an application process.
This is a common question. The role of the philanthropic services team at CFMT is to grow and support philanthropy among our donors, and in many cases their children. We do this work at the request of donors, and those who ask for specific introductions are small in number. Those who ask for suggestions are often new to town, have children they want to get engaged in giving, or longstanding donors who want to use some funds to support new areas of interest.
Our role is less about serving as an extension of any individual nonprofit’s fundraising efforts and more about supporting donors’ curiosity in growing their or their family’s interest in charitable giving and community needs.
Our team likes to include nonprofit research and meetings with nonprofits so that we are up to date with work happening in the community. This strengthens our role as a resource for donors who ask for advice.
Track DAF gifts in your system. DAF donors aren’t all that different from any other donor; they just have one more option for making charitable gifts. Many of your current donors likely already have a DAF (even if you don’t know it). Nonprofits need to set up systems to track donors who give through donor advised funds and analyze their giving over time.
- Consider featuring a story about one of your donors who gives through a donor advised fund in your newsletter or emails. Stories move hearts. Remind people of the good that DAFs can accomplish!
- Keep online profiles up to date. DAF holders tend to do their research (Vanguard reports more than 15,000 searches a month on Guidestar). CFMT encourages all nonprofits to have an updated profile in GivingMatters because we recommend donors use it themselves or we pull information from there when they request staff recommendations.
One more tip—you need to show them you’re DAF-worthy. If your website is dull, old, ego-centric, and focused on facts, figures, and processes, you won’t impress. Share emotional success stories, using photos, videos and testimonials, to specifically demonstrate your beneficial impact.
- Make it easy for donors to give from their donor advised funds. Promote giving through donor advised funds as an option in your nonprofit organization’s solicitation materials and on your donation website.
Referencing donor advised funds, and providing instructions on how to make a donation to your organization, increases the likelihood of those donors making a contribution. Also, be sure to include your Tax-ID number on all giving pages so that it is easy for them to find when recommending grants from their DAF.
