Ask the Fundraising Experts:
Question: I have been reading and hearing a lot about donor advised funds. How can my organization tap into this funding source?
Dear Fundraising Expert,
I am a board member of a medium sized social service agency that is constantly struggling to fund its programs. I have been reading and hearing a lot about donor advised funds. How can my organization tap into this funding source? Surely there must be a way.
Concerned board member
Dear Concerned Board Member,
I don’t know the ins and outs of your organization, but my first reaction is that you should stop and take a deep breath. Yes, complex changes are taking place in the philanthropic arena, but there are a couple of things to keep in mind. When it comes to philanthropy, I’m of the mindset that the rising tide lifts all boats, and the tide certainly is rising. 2014 is on pace to set the record for the highest figure of charitable gifts in American history. In 2013, total giving grew four percent from the prior year. Yes, much of the growth was driven by the largest, most successful, and most professional philanthropists but, much of the uptick was spurred by quality, small to medium sized organizations that do great work, tell their stories well and found creative ways to fundraise.
When it comes to donor advised funds, here are some basics you should know:
Donor advised funds allow philanthropists to set aside money for charitable purposes by placing it in the care of a nonprofit entity set up to handle these funds. When you place money in a donor advised fund, it counts for tax purposes as a charitable gift. You can’t change your mind and withdraw the money to buy a new car. You can wait as long as you want to distribute that money to a nonprofit entity. Donor advised funds essentially keep their address at one nonprofit but are set up to disburse money to other nonprofits.
Philanthropists are gravitating to donors advised funds, in part, because they are far cheaper to create and maintain than private foundations. Holders of donor advised funds are not required to distribute a certain percentage of its earnings each year, while foundations are required to distribute 5 percent of their income. Here’s another fact that drives foundations crazy: donor advised funds have very little reporting requirements to the IRS. The workings of donor advised funds may not be a secret, but by giving through donor advised funds, philanthropists can operate under the radar if they choose.
All of this makes it difficult to know where to find the money. There are no publicly available donor advised fund guides similar to existing foundation and grant guides. But just because donor advised funds aren’t required to disburse funds doesn’t mean they are hording charitable dollars. Quite the opposite is true. The latest figures illustrate that donor advised funds typically disburse about 16 percent of their holdings each year, which is actually much higher than that of most foundations.
The best approach may seem passive. It is in the sense that a fisherman may be somewhat passive until he or she gets the first tug on the reel and then springs into action. The most important thing nonprofits can do regarding donor advised funds is make note of it when it receives a gift from a donor advised fund. I’m talking about keeping track of it using sophisticated campaign management software. Then, your organization must cultivate and strengthen its relationship with the donor or family who made the gift. Individuals that start donor advised funds are philanthropically-minded and often cutting edge in their approach. Often, holders of donor advised funds are setting their money aside and waiting to be wowed and inspired, or at least moved by a solid demonstration of impact and effectiveness. It is your organization’s responsibility to tell your story to these donors and wow them. That shouldn’t stress you out or keep you up at night. It should invigorate you and awaken you to the opportunity that your nonprofit has as its fingertips.
If you have questions regarding fundraising, board management, strategic planning, nonprofit best practices or anything else related to nonprofits and philanthropy, please email us at email@example.com. All questions will be handled anonymously.
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