Donor-advised funds (DAFs) are increasingly important in philanthropy. Let’s break down what DAFs are, why they matter, and how you can encourage your US donors to give to your organization through their DAFs.
What are DAFs?
A DAF is a giving vehicle in the United States that allows donors to deposit funds into a charitable giving account with the flexibility to choose where to donate them at a later time. Think of it as a charitable giving savings account.
DAFs are becoming increasingly popular in the US because donors receive an immediate tax deduction for putting funds into a DAF account. Donors can contribute to their DAF accounts as frequently as they like and then recommend grants to their favorite charities whenever it makes sense for them.
Sponsoring organizations create and manage DAFs. The most common types of sponsoring organizations are financial institutions (like Fidelity, Schwab, or Vanguard) and community foundations (like The Silicon Valley Community Foundation or The Community Foundation of Greater Des Moines). These sponsoring organizations manage DAFs and facilitate donations on behalf of the DAF holder.
Why do DAFs matter?
DAFs have been around since the 1930s, but they’ve exploded in popularity over the past decade. In 2018, donors contributed $37.1 billion into DAF accounts and gave $23.4 billion from their DAFs to nonprofits, according to the National Philanthropic Trust’s Annual DAF Report. As DAFs grow in size, their potential to impact disaster recovery and international philanthropy also increases.
While the need for funding during the COVID-19 pandemic grew for nonprofits, DAFs remain a huge source of untapped funds. Grants made to nonprofit organizations through DAFs are often unrestricted. That means there are far fewer reporting requirements attached to these donations, which helps nonprofits focus on their mission rather than administrative tasks.
Because individuals with DAFs often give to their favorite organizations over a multi-year period, nonprofits have the opportunity to receive consistent, recurring funding that helps them better forecast their annual revenue.
Once funds are in a DAF, they must be donated to charitable causes. However, there are no time requirements for donating—that means funds can sit untouched in a DAF account for years. While the amount of funds in DAF accounts has tripled over the past decade, the actual payout to organizations has remained stagnant.
How can my nonprofit take advantage of DAFs?
If you have a US-based charity, you can directly receive donations from DAFs. If you have an international organization, an intermediary like GlobalGiving can facilitate DAF grants for you.
The nonprofits that are most likely to benefit from DAFs are the ones that ask. You may already have relationships with American donors, and these donors may be DAF holders. Let donors know on your website and in all of your email communications that you can accept gifts from DAFs via GlobalGiving if you are a vetted partner in our nonprofit community. Additionally, you can reach out directly to community foundations and tell them about the work you are doing. If you build a relationship with a community foundation, they may be able to recommend grants to your organization.
To learn more about DAFs, take a look at our planned giving page or read about common DAF myths.
Featured Photo: Emergency support for staff salaries during Covid by African Promise