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This article was originally published on the Nonprofit Leadership Alliance blog. You can read the full article here.
In the nonprofit world, donor-advised funds are on everyone’s minds as they continue to gain popularity with supporters. In fact, a 2022 report estimates that there are over $234 billion in assets currently held in donor-advised funds.
But what exactly are donor-advised funds, and why should you care as a nonprofit professional? In this quick beginner’s guide, we’ll cover all the basics:
- What is a Donor-Advised Fund?
- What’s the Appeal of DAFs?
- Why Nonprofits Should Engage DAF Holders
- How to Ask for DAF Grant Donations
Whether your nonprofit is looking to increase your reserve funds or hit your annual fundraising goal, you should factor donor-advised funds into your strategy. Let’s dive into what that looks like.
What is a Donor-Advised Fund?
Donor-advised funds (DAFs) are charitable giving accounts set up by individual donors, which they use to donate funds to multiple nonprofits over an extended period of time.
Instead of the donor themself owning the funds, they open a DAF through a public charity, foundation, or investment advisor who manages their account. The donor then “advises” their DAF provider by requesting for grants to go to specific nonprofits or causes.
DAFs are similar to endowments, as both are charitable accounts meant to grow over time rather than be used by nonprofits right away. Endowments, however, are often gifted directly to nonprofits, giving the organization ownership of the principal and more control over the funds. With DAFs, your organization receives grants from the fund instead of the fund itself.
What’s the Appeal of DAFs?
Why would donors choose to open a DAF instead of just donating cash periodically to the causes they care about?
Well, for the segment of your supporters that have a high capacity to give and want to make a greater impact on your mission, DAFs hold a lot of appeal. DAFs offer donors:
- Tax benefits: Donors get tax deductions any time they contribute to the fund, even if they’re not donating it directly to an organization yet. This means that they can put money aside and receive tax benefits now, then potentially donate a higher amount to your nonprofit later after the fund has grown.
- Potential for funds to grow: By putting their donations in an investment account, DAF holders can increase their long-term giving potential. Adding $200 to their DAF now could turn into a $300 donation for your nonprofit in the future.
- Ability to create a lasting impact: The biggest appeal of DAFs is that they enable donors to create a legacy of giving to multiple organizations over the course of their lives. Opening a DAF is a lifelong commitment to supporting the causes they care about and making a larger difference over time.
For example, let’s say a donor named Beverly has $200,000 she wants to donate to fund cancer research. She could either make a single donation to one charity now and walk away, or she could put her $200,000 into a DAF and commit to supporting a variety of cancer research nonprofits over the course of her life.
By opening a DAF, Beverly can increase her long-term impact and still receive a tax deduction this year—plus, she avoids the responsibilities and complex legalities of running a private foundation. All she has to do is add money to the fund and make grant requests to her provider!
Why Nonprofits Should Engage DAF Holders
There are clear reasons why donors like DAFs, but what about nonprofits? As a nonprofit leader, are there benefits to creating specific stewardship strategies aimed at DAF holders?
Yes! Building relationships with DAF-holding donors is a major opportunity for your nonprofit to generate lasting support. This is because donors who already hold a DAF tend to have a higher capacity to give and a clear commitment to charitable giving.
Prioritize finding DAF holders in your prospect research. Then, once you know a supporter holds a donor-advised fund, put in extra work to steward that relationship through recognition, appreciation, and personalized communication.
How to Ask for DAF Grant Donations
After building strong relationships with DAF-holding donors, you’ll be ready to make your ask. Asking a donor to gift a DAF grant can feel more complicated than making a standard fundraising appeal, so develop a dedicated strategy for soliciting DAF donations. To simplify the process for both you and your donors, take these two steps:
1. Use donor-advised fund software
Investing in specialized donation software makes it easy to ask for and accept non-cash donations like DAF grants. The process can vary depending on which platform you use, but Infinite Giving’s DAF software page explains the basic steps:
- Your nonprofit adds a DAF widget to your donation page.
- Donors select their donor-advised fund provider.
- The software automatically directs donors to the steps they need to take to request a DAF grant from their provider.
- Donors request a grant and your nonprofit receives the donation.
With donor-advised fund software, your nonprofit can quickly send donors a link to your donation page and provide them with all the information they need to request a grant. This makes the request process straightforward for both you and your donor.
When choosing a DAF software provider, pay close attention to any added fees they charge. You want to choose software that doesn’t require any transaction fees for DAF gifts so that the full donation goes to your organization.
2. Promote DAF donation options to supporters
Once you give donors the ability to easily request DAF grants on your donation page, create a marketing plan to let them know about the option.
Getting Attention’s nonprofit marketing guide suggests using multiple channels and different types of content to ensure the widest reach. Consider creating branded promotional materials like:
- Social media infographics that explain the benefits of DAFs
- Personalized letters to DAF-holding donors requesting donations
- Explainer videos that show how easy it is to request a DAF grant
- A dedicated donor-advised fund page on your website
Get creative, but make sure to cover all the key information donors need to know, including how and where they can make their DAF grant request.
Whether you’re a seasoned nonprofit professional or just entering the industry, knowing these donor-advised fund basics will put you in a position to earn more revenue for your nonprofit. Once you feel comfortable discussing DAFs, you can dive deeper into other donation methods that are rising in popularity, like stocks and cryptocurrency.
