Well, there are lots of reasons.
A Donor Advised Fund is often referred to as a DAF. Although I am no expert on Donor Advised Funds, I’ve heard about their increased popularity over the years, and I wanted to know more. Here are some of the things my recent investigation into DAFs taught me.
What is a DAF?
According to Fidelity Charitable, a donor-advised fund, or DAF, is like a charitable investment account for the sole purpose of supporting charitable organizations you care about. The funds are invested in stocks and bonds so that the principal can grow. The investor (the donor) directs (advises) to which organization funds will be given.
Are Donor-Advised Funds Good for Nonprofits? …such as churches? “Sponsors [of DAFs] include community foundations, the charitable arms of investment managers such as Fidelity and Charles Schwab, religious organizations, and universities.” Yes, we at UMF offer DAFs and would gladly help you set up Donor Advised Funds. Here’s a link to our website: https://umfnc.org/accounts/open-new-account/
First, the sticker shock: While some financial organizations do not require a minimum amount to start a DAF, more than likely, a donor will need $25,000 accrued to start giving donations annually. We at UMF do not have minimum requirements for Endowments, RIAs (Revocable Investment Accounts), or DAFs. This means that anyone, with any amount, can establish a DAF. The fund’s annual growth is available for distribution, while the corpus is maintained in perpetuity.
That’s a lot! I can’t relate. Why should I be interested?
DAFs have seen a phenomenal rise in the last few years. Between 2017 and 2021, the number of individual DAF accounts grew by 28% – nearly 1.3 million accounts. In 2022, grants from DAFs totaled a whopping $45.7 billion (with a “b”) – a 28% increase from 2020.
No doubt, there are those in your congregation or nonprofit who have established a Donor Advised Fund. Because they may be advising that some of those funds go to your organization, that’s why you should be interested.
Give me the basics. Why would someone open a Donor Advised Fund?
According to Investopedia, the primary advantage of opening a DAF is that the donor can receive a one-time tax deduction without deciding who will receive the funds immediately. Money to the DAF can be given over several years, and with any new additional donation to the DAF, there is a tax deduction. Parents can use DAFs to help teach children about charitable giving – another good reason to know about DAFs.
Are DAFs a tax shelter?
Jenn Columbus, who is a Philanthropic Advisor for the Oregon Community Foundation, offers a good explanation. She clarifies that DAFs are not tax shelters except for a one-time deduction in the year the donor establishes a fund. And, once someone has committed money to a Donor Advised Fund, they cannot get their original investment back. Though there is a small fee to manage the fund, the DAF will accrue interest, which means the donor can continue to give grants to their designated charities. DAF donors give on average a 20% payout annually compared to foundations who give a little more than 5%.
How does this work for a church?
According to Columbus, the person who sets up a DAF can ask that their funds be given to their congregation over a multi-year period, annually or monthly. FYI: Per IRS guidelines, you cannot use DAFs to make a pledge.
Does a donor have to give grants once the DAF is set up?
Yes and no. This is up to the place where the donor initiated the DAF. Some foundations have a policy that grants from an advised fund are made annually or at least once every three years. Others do not. If the donor’s intention is for the money to be used, it would be important to distribute funds to the community. Setting up “by request” is an option, but it is not the norm.
Are their DAF naysayers?
Are you kidding? Of course! Vu Le, the Nonprofit AF blogger, is not a fan because some DAF sponsors do not require funds to be distributed. As a result, many people are holding onto their money through DAFs rather than giving it to nonprofits that are in immediate need of the funds. How’s this for his provocative funny/not funny blog title: Slimier than a banana slug and not nearly as cute: How donor-advised funds threaten our democracy.
Now that you know, what should you do?
You don’t have to do anything. But, if you want to be a potential DAF beneficiary, you should have a working knowledge of DAFs and how they might help your congregation or organization. When someone comes to you and says, “I’ve established a Donor Advised Fund, and I’d like your fabulous church or nonprofit to be the beneficiary,” you’ll be able to smile and say, “Terrific! I know a little about DAFs. Tell me more.”
Friends, like them or not, Donor Advised Funds are growing in popularity. They may seem like a distant reach from your ministry and mission, and yet one more thing (sigh) to learn about. But hear what Henri Nouwen says in The Spirituality of Fundraising (try substituting the word “fundraising” with “Donor Advised Funds”):
Fundraising is a very rich and beautiful activity. It is a confident, joyful, and hope-filled expression of ministry. In ministering to each other, each from the riches that he or she possesses, we work together for the full coming of God’s Kingdom.
May it be so!
This article was submitted by Rev. Lynn Benson, Director of Legacy Giving for the United Methodist Foundation, Inc. If you would like more information regarding UMF, you can contact Lynn at lbenson@umfnc.org.