A donor wants to provide meaningful support with real estate, cryptocurrency, artwork, or an interest in a closely held business. If the gift exceeds your organization’s capacity or falls outside your gift acceptance policy, that doesn’t need to be the end of the story. A donor-advised fund (DAF) sponsor with experience handling complex assets may offer another path by accepting the property, selling it, and allowing the donor to recommend a cash grant to your organization.
DAF Day is a timely opportunity to consider how DAF sponsors can help facilitate complex gifts that an organization cannot accept directly. Knowing who to contact, what questions to ask, and what to expect from the process can help preserve a promising gift opportunity without exposing your organization to risks it can’t manage.
When a DAF makes sense
A direct gift is usually the simplest option when your organization can accept it. However, some assets require specialized due diligence, valuation, custody, or liquidation procedures. A DAF sponsor that regularly handles complex assets may instead evaluate the asset, arrange for its sale, and make the net proceeds available for grantmaking.
This approach does not make every asset acceptable. A sponsor may decline a contribution because of debt, environmental concerns, transfer restrictions, limited marketability, or a sale that is already too far along.
Prepare before an opportunity arises
Before a donor approaches you with a potential gift of a complex asset, identify DAF sponsors that consider these assets and establish a contact so you know whom to call when an opportunity arises. Learn which assets each accepts, whether account minimums apply, how the review works, and how a donor or advisor should start the process. Ask about fees and whether the donor must contribute cash to cover expenses before the asset sells.
Encourage the donor to begin the conversation early and coordinate with legal and tax advisors, and clarify that the sponsor will conduct its own review. Stay in contact so you can plan for a potential grant without treating it as certain revenue.
How the asset becomes a grant
1. The sponsor reviews and approves the contribution. Before completing the transfer, the donor should consult their advisors about tax treatment and documentation, especially if a sale is already under discussion. A qualified appraisal may be required.
2. The donor transfers ownership. The contribution is irrevocable, and the sponsor controls the property and its sale.
3. After the asset sells, the net proceeds are credited to the donor’s DAF. The sale price may differ from the appraised value, and expenses reduce the amount available for grants.
4. The donor recommends a grant to your organization, subject to sponsor approval. Contributing the asset does not automatically send the proceeds to your organization, so follow-up remains important.
Plan for an uncertain timeline
The timing depends on the asset. A sponsor may sell cryptocurrency relatively quickly, while real estate or a closely held business interest could take much longer.
Suppose a donor offers undeveloped land to fund a program starting next spring. Even if the DAF sponsor accepts it, your organization has no firm payment date. In this scenario, you would likely need to consider whether the program can wait, the proceeds could be used to support a later phase, or the donor needs to use another funding source if they want to meet the immediate need.
Year-end timing reminder
Donors hoping to claim a deduction for a gift of a complex asset this year should contact the sponsor as soon as possible. Review, due diligence, appraisal, and transfer can take longer than expected, and deadlines vary by asset. Opening an account or starting paperwork does not complete the gift.
The gift and grant follow different timelines
• When the donor makes the contribution. A transfer to a DAF completed by December 31 may qualify for a deduction this year, subject to limitations. The DAF sponsor does not need to sell the asset by year-end for the donor to receive any potential tax benefit.
• When your organization receives the grant. After the asset sells, the donor may recommend a grant, subject to sponsor approval. Your organization may receive the money in a later year, affecting when it can be used.
Use DAF Day to identify sponsors that handle complex assets before the next unusual gift appears. Your knowledge can help you guide donors toward a workable solution that meets their goals and benefits your organization.
