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Problem: Donor-Advised Funds (DAFs) may lead to delays in donations, as funds can sit in DAFs without being used right away.

Solution: Encourage DAF donors to recommend grants sooner by showing how their gifts can make a quick, real impact, and make the process easy with tools like a “Give through Your DAF” button on your website.

Introduction

Donor Advised Funds (DAFs) have become a key vehicle for modern philanthropy, offering flexibility and significant tax advantages that attract donors seeking long-term, strategic giving options. This section provides an in-depth understanding of DAFs, detailing how they work, their benefits, and best practices for nonprofit organizations aiming to secure contributions from these funds. Here, you'll find insights on crafting targeted appeals, managing relationships with DAF sponsors, and building stewardship programs tailored to the unique characteristics of DAFs. Through these strategies, nonprofits can more effectively engage DAF donors, maximizing the impact of these contributions for sustained and meaningful support.

Tool

• Understanding Donor Advised Funds and Their Mechanics
• Definition and Structure: A DAF is a philanthropic giving vehicle administered by a third party, typically a financial institution, community foundation, or charitable organization. Donors make irrevocable contributions to the DAF, receive immediate tax deductions, and can recommend grants to qualified nonprofits over time.
• Unlike direct donations, funds in a DAF are not directly controlled by the donor once contributed; instead, they’re managed by the sponsoring organization.
• However, donors can make recommendations for grants, which are often followed by the DAF sponsor, but legally, the sponsor retains control over distribution.
• Developing Targeted Appeals for DAF Contributions
• DAF donors often prioritize tax efficiency and strategic giving.
• Use appeals that emphasize the long-term impact and scalability of support through DAFs, focusing on substantial projects rather than small, routine gifts.
• Since DAFs can only grant to registered 501(c)(3) organizations, clearly communicate your nonprofit’s status to reassure DAF holders of compliance.
• Also, provide guidance on the specific types of programs or general operating support that DAF contributions would bolster.
• Highlight Multi-Year Opportunities: Many DAF holders are interested in long-term impact, as they are able to allocate funds gradually. Present multi-year commitments or phased projects that align with DAF fund structures to appeal to these donors’ preferences.
• Creating DAF-Specific Stewardship Programs
• Recognizing DAF Donors: Since DAFs typically distribute funds without including donor names, proactive stewardship is essential. Encourage DAF donors to notify your organization when they make a grant recommendation. Recognize DAF gifts in your annual reports or donor listings, respecting anonymity where requested.
• Dedicated Communications: Develop tailored communications for DAF donors, such as specialized newsletters or impact reports. These should underscore how DAF contributions are applied over time and highlight ongoing organizational needs that may benefit from additional grants.
• DAF-Friendly Thank You Notes: Use thank-you language that complies with DAF guidelines. For instance, avoid statements that imply benefits to the donor, as this could jeopardize the charitable nature of the DAF grant.
• Educating Potential DAF Donors
• Promoting DAF Benefits to Donors: Educate your donor base on the tax benefits and flexibility that DAFs provide, especially for those in higher income brackets or with appreciated assets. Emphasize that DAFs allow them to make significant tax-deductible contributions now while having the flexibility to recommend grants over time.
• DAF Workshops and Webinars: Offer sessions with financial or legal experts who can explain how DAFs operate. Collaborate with financial advisors who might refer clients interested in charitable giving but looking for tax-efficient vehicles like DAFs.
• Engaging Financial Advisors and DAF Sponsors
• Building Advisor Relationships: Since financial advisors often guide high-net-worth individuals on DAF establishment and usage, forming relationships with advisors can position your organization as a preferred grant recipient. This can involve hosting informational events, sharing organizational success metrics, or producing materials advisors can share with clients.
• Engagement with DAF Sponsors: Engage with DAF sponsoring organizations—such as Fidelity Charitable or Schwab Charitable—to ensure your organization is visible within their grant recommendation platforms. Many DAF sponsors have digital directories or portals; verify your information is accurate and up to date.
• Strategic Appeals for Recurring Grants
• Encouraging Recurring DAF Grants: DAFs are suitable for recurring contributions, especially for operational or programmatic support. Develop appeals that propose annual or bi-annual grants, structured as renewals of prior DAF contributions, which can aid in building reliable revenue streams.
• Showcasing Measurable Outcomes: DAF donors are often impact-driven. Provide measurable outcomes, like reports on fund usage, program results, or impact stories that align with the initial grant recommendation to encourage future recommendations.
• Tracking and Analyzing DAF Contributions
• Database Integration: Track DAF contributions distinctly in your donor management system. Segment DAF donors from others to analyze trends specific to this group and adapt communication and follow-up efforts based on these insights.
• Benchmarking DAF Growth: As DAFs have become more popular, track the growth rate of DAF contributions within your donor pool. Compare metrics like average gift size and frequency with other donor types to assess the efficacy of DAF-specific strategies.
• Navigating Compliance and Restrictions
• Complying with DAF Grant Rules: It’s essential to understand and adhere to DAF restrictions, such as the prohibition on providing direct benefits to donors. Avoid sending gala or event invitations that involve a ticket purchase, and ensure language in acknowledgments avoids suggesting quid-pro-quo benefits.
• Avoiding the Appearance of Influence: Because DAFs are irrevocable contributions, messaging must avoid implications that the DAF donor retains control over funds. Instead, use language that reflects the donor’s role in “recommending” grants rather than “giving” funds directly.
• Integrating DAFs with Planned Giving Strategies
• Positioning DAFs as Part of Legacy Giving: Many DAF holders are candidates for planned giving as they often view their philanthropy through a long-term lens. Highlight DAFs as part of legacy planning, suggesting that donors may name your organization as a successor charitable beneficiary for residual DAF funds upon their passing.
• Cross-Promoting DAFs and Bequests: Educate your bequest donors on the possibility of leaving residual DAF balances to your organization, which can be an efficient way for donors to use unallocated DAF assets in support of their legacy intentions.
• Leveraging Technology for DAF Grants
• DAF-Specific Giving Portals: Offer a DAF-friendly portal on your website where DAF donors can recommend grants. Many organizations include a “Give through Your DAF” button that directs donors to common DAF providers, making it easy for them to initiate grants.
• Exploring Emerging DAF Platforms: Stay updated on new platforms and services that simplify DAF giving. Some fintech solutions now provide seamless connections between donors and nonprofits, which could be integrated into your website to simplify the DAF granting process.
• Navigating the Controversy of Donor Advised Funds (DAFs) and "Parking" Wealth
• One of the key criticisms of DAFs centers on their potential for enabling wealthy individuals to secure tax benefits without promptly directing their funds to active charitable use. Since DAFs are not subject to legally required minimum distribution rules (unlike private foundations), funds can, in theory, remain within these accounts indefinitely, allowing donors to "park" wealth in DAFs without a set timeline for charitable distribution. This can lead to a discrepancy between the charitable intent behind DAFs and the actual impact achieved in the short term.
• For fundraisers, this controversy presents both a challenge and an opportunity to engage with DAF donors in ways that encourage timely, impactful giving without alienating or pressuring donors. Here’s how fundraisers can approach this issue with a balanced mindset:
• Understanding Donor Motivations
• Acknowledge Strategic Giving: Recognize that many DAF donors are drawn to these funds because they offer flexibility to give thoughtfully over time. This flexibility often appeals to individuals who prefer to research organizations and causes or wish to support charities through challenging economic cycles when direct donations may be less feasible.
• Cultivating Empathy: Approach conversations with the understanding that for some donors, the act of “parking” funds may not be an avoidance tactic but rather a way to ensure they are making a meaningful impact. Many DAF donors genuinely want their contributions to make a difference, even if their timeline is more prolonged than a direct donation.
• Building Bridges Through Education and Transparency
• Educate on Immediate Needs: Share how immediate or near-term DAF grants can meet pressing needs. Present your organization’s programs and services in a way that aligns with donors’ philanthropic values and demonstrates the direct impact that timely grants can make. Use concrete examples and success stories to show how an immediate gift would contribute to measurable outcomes.
• Transparency About Fund Allocation: DAF donors are often discerning and analytical; providing transparency about where their money will go and how it will be used can encourage them to act sooner. Offer detailed breakdowns on project budgets or targeted program funding goals, as this often appeals to DAF donors who might be cautious about committing to large grants without clear impact pathways.
• Addressing the "Parking" Issue Tactfully
• Frame Giving as Legacy Building, Not Hoarding: Reframe the narrative around DAFs by encouraging donors to view their contributions as an opportunity to create a living legacy. By making grants during their lifetime, DAF holders can see their impact, allowing them to shape the future of the causes they care about. Emphasize the value of active engagement rather than waiting indefinitely to make distributions.
• Highlight the Impact of Strategic Philanthropy vs. Holding: Educate DAF donors on how incremental, strategic gifts can compound over time to build programs and impact. For example, explain how a multi-year commitment or regular distributions can make a significant difference compared to waiting for a single, larger grant in the future. This approach respects the donor’s desire for thoughtful giving while subtly addressing the downsides of indefinite holding.
• Appealing to Values of Responsibility and Accountability
• Ethics and Accountability in Philanthropy: Many DAF donors are highly committed to ethical giving and often want to be seen as responsible stewards of their wealth. Engage DAF donors in conversations about how they can model responsible philanthropy by deploying their funds to align with their values. Encourage them to use their DAFs not only as a tax benefit but as a mechanism for active, accountable giving.
• Encourage Reflection on the Purpose of Philanthropy: Invite donors to consider their DAF as part of a broader philanthropic journey rather than as a passive investment vehicle. Remind them of the importance of regular grantmaking in addressing pressing issues and suggest that this can enhance their philanthropic legacy. By helping donors connect their funds to the issues they care about most, you can often inspire action that overcomes the tendency to "park" funds indefinitely.
• Practical Strategies for Inspiring Immediate Action
• Develop "Urgent Impact" Opportunities: Design initiatives or programs that have immediate needs and outcomes, which may appeal to DAF donors who are looking for meaningful, time-sensitive projects. Examples include funding emergency relief efforts, specific annual initiatives, or matching campaigns, which can be particularly attractive to DAF donors as they provide a clear and immediate impact.
• Implement Matching Challenges for DAF Grants: If possible, create matching grant opportunities specifically for DAF donors, which can motivate donors by amplifying the effect of their grant. This strategy leverages both the donor’s desire for impactful giving and the psychology of collective action, positioning their DAF as a tool for catalyzing further support.
• Maintaining a Balanced Psychological Approach as a Fundraiser
• Adopt a Long-Term Perspective: While it may be frustrating for fundraisers to see funds held without immediate distribution, maintaining a patient, long-term perspective can help in cultivating lasting relationships with DAF donors. Viewing DAFs as a steady source of potential funding can provide psychological comfort and reframe “parked” funds as opportunities for future support rather than immediate losses.
• Resist Pressure and Focus on Cultivation: Avoid pressuring DAF donors, which can risk alienation. Instead, view these relationships as gradual, high-touch cultivation opportunities. By building trust and rapport over time, fundraisers can create an environment where DAF donors feel comfortable making grant recommendations regularly.
• Stay Positive About the Potential for DAF Growth: With the rapid growth in DAF contributions nationwide, fundraisers are increasingly seeing DAFs as vital to nonprofit sustainability. Channeling optimism about the potential of DAFs can help sustain a positive mindset and offset any frustration around the “parking” controversy.

Expectation Map