A donor-advised fund (DAF) is a well-regarded charitable giving account that provides great flexibility for donors. When a donor transfers assets into a DAF, the contribution qualifies for an immediate charitable income tax deduction, and the assets enjoy professional asset management and tax-free growth. Then, when the time is right, the donor can recommend grants to meaningful, qualified charities.
Grants from donor-advised funds are on the rise—a phenomenon that can benefit your organization. In fact, you may be able to maximize your benefit from DAF giving by understanding the reasons for this popularity and strategically educating and encouraging supporters.
What do the numbers say?
According to the Giving USA 2023 report, the challenging economic conditions we experienced in 2022 resulted in a decline in total charitable giving. While some organizations (including Vanguard Charitable and Fidelity Charitable) experienced a corresponding decrease in contributions to donor-advised funds, other organizations (including Schwab Charitable and National Philanthropic Trust) continued to enjoy growth, with National Philanthropic Trust experiencing a remarkable 50.7% growth!
Grants made from DAFs, however, did not decline in 2022 despite the more difficult economic times. In fact, the numbers reveal substantial, consistent growth. According to the National Philanthropic Trust’s 2022 Donor-Advised Fund Report, from 2012 to 2021, grants from DAFs increased by a whopping 400%, making it one of the fastest-growing sources of charitable dollars. Collectively, 2022 grants from Fidelity Charitable, Schwab Charitable, Vanguard Charitable, and National Philanthropic Trust amounted to $23.6 billion—7% higher than in 2021.
Why are DAFs on the rise?
Donor-advised funds offer significant benefits to those who are committed to charitable giving, even if they haven’t yet determined the details of the gifts they would like to make.
• Comfortable giving. When a supporter wants to make a meaningful contribution without sacrificing their financial safety net, a donor-advised fund makes it easy to give using funds that have already been irrevocably set aside for charitable purposes.
• Flexibility and control. The donor has complete control over when to contribute to the DAF (perhaps when they can most use the charitable income tax deduction) and when to recommend grants. Donors can make additional DAF contributions at any time, including a bequest in their will to the DAF.
• Greater simplicity for complex assets. Donors can contribute a range of assets, from cash and appreciated stock to cryptocurrency, real estate, and business interests. Both Schwab Charitable and Fidelity Charitable reported that a majority of DAF contributions were non-cash assets. Since not all charities are able to accept complex assets, DAFs provide a simpler alternative.
• Ability to bunch gifts. With the high current exemption amounts, many donors are not itemizing their taxes every year, making it more difficult to take advantage of a charitable income tax deduction from a gift. A DAF makes it easy for donors to contribute the amount they would typically give over two or more years all at once (at a level where it makes sense to itemize), take the immediate tax deduction, and then recommend grants in increments over time.
Are there ways to encourage DAF grants?
If your goal is a steady stream of support from donor-advised fund grants, consider ways to maximize your donor communications.
• Regularly include donor-advised funds in all forms of marketing. Despite the rising popularity of donor-advised funds, a recent survey by the Institute for Policy Studies revealed that out of the 1,005 adults surveyed, only 19% were aware of DAFs and how they work. This presents an important opportunity to step in and educate donors on the benefits of this gift option.
• Promote your ability to accept grants. In doing so, you can attract the attention of potential donors who are drawn to the convenience and tax advantages of giving through a DAF.
• Follow up on previous DAF grants. Establish a targeted outreach strategy for donors who have already given through a donor-advised fund. Show your appreciation and encourage new grants, perhaps in support of a particular program or campaign.
• Survey supporters to discover existing DAFs. People with established donor-advised funds have demonstrated a commitment to long-term charitable goals. Communications with these potential donors should include reminders of how easy and comfortable it is to recommend grants from a DAF.
*Giving USA 2023: The Annual Report on Philanthropy for the Year 2022 is a publication of Giving USA Foundation, 2023, researched and written by the Indiana University Lilly Family School of Philanthropy.
