Attracting and Stewarding Donor-Advised Fund Gifts

Not exactly sure what donor-advised funds (DAFs) are, how your organization can attract more gifts from these funds, or what to do when your organization receives a gift from one? Here’s a quick guide!

Why should you care about DAFs?

DAFs are now widely recognized as one of the fastest-growing forms of giving to the philanthropic sector.

According to National Philanthropic Trust’s annual Donor-Advised Fund Report, in FY 2022, grants made from DAFs to philanthropic organizations totaled over $52 billion, an increase of 9% from the year prior. In the past five years, grants from DAFs have more than doubled!

In addition, contributions to DAFs continue to rise. In FY 2022, contributions surpassed $85 billion, for an increase of 9% from the year prior as well.

Your organization likely has or will be receiving contributions from DAFs in the near future with this meteoric rise. If not, you are missing out on a major form of charitable giving.

What are DAFs, and how do they work?

A DAF is a charitable giving vehicle established at a public charity, such as a 501(c)(3) arm of an investment firm or community foundation. Some of the largest DAFs are managed by Fidelity, Charles Schwab, and Vanguard.

A donor makes a charitable contribution (cash, securities, or other assets) to their DAF and receives an immediate tax deduction. The contribution can then be invested to further grow the funds, tax-free.

While the donor no longer has legal control over the money in their DAF, they can recommend that grants be distributed from their fund to any public charity. Unlike foundations (public and private), DAFs are not required to disburse to nonprofits each year.

How can your organization attract more grants from DAFs?

• Keep focusing your development efforts on individual donors. While the donor to a DAF doesn’t have legal control over their DAF funds, they do have significant influence over where the funds are distributed, so your one-on-one relationships with donors are still key to attracting these grants.
• Make sure your donors know that your organization is ready and willing to accept grants from DAFs. Include this messaging on your website, in your annual report, in communications with donors, etc.
• Ensure your organization’s public profiles are up to date on nonprofit data websites such as Guidestar.org, where DAF managers may look for information to vet your organization.

So, your organization received a gift from a DAF – congratulations! Now what?

1. What to expect.

When you receive a gift from a DAF, it will likely be accompanied by a letter that reads something like this:

It is a pleasure to present a $1,000 grant to ABC ORGANIZATION to be used for PURPOSE. This grant was made at the recommendation of a fund advisor through a donor-advised fund at the XYZ Foundation.

Fund Advisor: Jane Doe
Fund Name: Jane Doe Family Fund

Please note that it is not necessary to send the XYZ Foundation any tax receipt or acknowledgment letter, and we ask that you do not add the XYZ Foundation to your mailing list.

The check is made directly from the public charity, such as Fidelity Charitable, so you won’t see the individual donor’s name on the check.

2. Entering the gift in your database.

To record the gift, we recommend the following procedure as a best practice:

• Enter the gift under the record of the DAF. Here’s why: While the individual donor made the recommendation to send this donation, the final decision and the distribution of the money are managed by the DAF.
• Enter a soft credit on the record of the individual who made the recommendation to send the gift. Here’s why: A soft credit is used to track and steward supporters who may not make a gift directly but who have considerable influence over the decision to make a gift to your organization—as is the case with a DAF.
• It’s important to note that IRS regulations prohibit a donor from receiving a benefit with a payment from a DAF, so event sponsorships and tickets, among other things, cannot be paid for from a donor’s DAF.

3. Acknowledging and stewarding the gift.

You do not need to send a tax receipt or acknowledgment letter to the DAF itself. It is important, however, that you express your gratitude to the person who recommended the grant. You can create a letter template that’s specifically used for this purpose while keeping the following in mind:

• Do express your appreciation for the grant made through the DAF. This letter is your opportunity to thank and steward the person who recommended the grant.
• Do not include tax-deductible language—the supporter received a tax deduction when they put the money into the donor-advised fund.

Here’s a quick example:

Thank you for recommending that we receive a generous grant of $1,000 through your donor-advised fund at XYZ Foundation. We have received the grant, and the funds will make a profound difference in the lives of homeless children in our community.

Thank you again for caring so deeply about the mission of ABC Organization. We are grateful for your support.

If the donor allows, you may also choose to recognize the donor publicly.

Stay in touch with your DAF donors and make sure they stay engaged with your organization – as a donor, volunteer, etc. Illustrate the power and impact of their gift to foster a relationship with them and encourage repeat and higher levels of giving.

4. What do you do if there is no identifying information about the donor?

If the gift is explicitly anonymous, we recommend sending a thank you note to the fiduciary, asking them to pass it along to the donor on your behalf.

However, if it’s not clearly anonymous, take time to review the documentation carefully to make sure you’re not missing anything. The donor’s name is not always in an obvious place!

Have further questions about DAFs or how to manage and steward gifts from these funds? Drop us a line at labolg.retrac@ofni.