The world of philanthropy is evolving, and with it, the ways in which donors choose to support their favorite nonprofit organizations. One important shift in this space has been the rise of donor-advised funds (DAFs). DAFs have become an increasingly popular vehicle for charitable giving, and for good reason. In this blog post, we will explore what a donor-advised fund is and why it's of growing importance for nonprofits.
A donor-advised fund is a philanthropic giving vehicle administered by a public charity or a sponsoring organization, like a community foundation such as The New Community Trust or a financial institution like Fidelity Charity or Morgan Stanley (MS GIFT). The donor makes an irrevocable contribution to the fund, receives an immediate tax deduction, and then recommends grants to qualified nonprofit organizations over time. DAFs enable donors to streamline their charitable giving, allowing them to make a single contribution to the fund and then distribute grants to multiple charities without the administrative burden of setting up a private foundation.
DAFs provide an attractive option for potential donors to get involved in philanthropy. By simplifying the giving process and offering tax advantages, DAFs can encourage more people to support nonprofits. As a result, nonprofits have a greater pool of prospective donors to tap into, which can lead to increased funding and long-term sustainability.
Donors who use DAFs tend to be more consistent in their giving. This is because they have already committed their funds to the DAF and are looking for opportunities to make grants to nonprofits. This consistency can provide nonprofits with a reliable source of funding, helping them plan and execute their programs more effectively.
When donors contribute to a DAF, they have the option to invest the funds, potentially allowing their contributions to grow over time. This means that, in some cases, nonprofits could receive more substantial grants from DAFs than they would from one-time direct donations. Furthermore, some DAFs may also provide multi-year support to nonprofits, helping to ensure financial stability and enabling organizations to plan for the future.
By receiving grants from a DAF, nonprofits can avoid some of the administrative tasks associated with managing individual donations. This can save time and resources, allowing organizations to focus on their core mission and programs. In addition, some DAFs may also provide capacity-building support or technical assistance, helping nonprofits strengthen their organizational infrastructure.
DAFs can encourage donors to be more involved in their philanthropy, as they have the opportunity to research and select the nonprofits they wish to support. This active engagement can lead to stronger relationships between donors and nonprofits, fostering a sense of partnership and a shared commitment to the organization's mission.
Donor-advised funds have transformed the philanthropic landscape, offering donors a convenient and efficient way to support the causes they care about. For nonprofits, DAFs represent an essential source of funding, helping to attract new donors, ensure consistent support, and reduce administrative burdens. As the popularity of DAFs continues to grow, nonprofits that understand, leverage and empower DAF fund decision-makers to use these funds will be well-positioned to thrive and make a lasting impact.
If you want to see how to capture donor-advised fund gifts to increase your nonprofit's fundraising revenue streams, book a complimentary meeting with our strategy team.