Podcast | The Rise of Donor-Advised Funds: How Nonprofits Can Benefit from this Fast-Growing Giving Vehicle

Donor-advised funds (DAFs) are increasingly becoming the most popular charitable giving vehicles in the U.S., thanks to their ability to maximize both giving impact and tax benefits. According to the National Philanthropic Trust, contributions to DAFs at community foundations grew 20.2% from 2017–2021. Additionally, a 2023 FreeWill report shows that nonprofit organizations with a DAF strategy raised 2x more than those without one. What’s more, total DAF contributions in 2021 hit a whopping $14.56 billion — that’s a 48.4% increase from $9.7 billion the previous year.

So, what are DAFs? In this episode, Vicky Kelberer from Vanguard Charitable, a leading provider of donor-advised funds, joined the show to provide a download on DAFs, plus six easy steps nonprofits can take to jumpstart their DAF fundraising strategies.

What Are DAFs?

Donor-advised funds are like charitable savings or investment accounts. Donors (which can encompass individuals, groups, corporations, or private foundations) open a DAF account and add assets to it. These assets can be cash or non-cash. The contribution is tax-deductible, and the investments grow tax-free.

The donor decides which charity receives the account funds, known as a grant, and when the funds are released. A provider such as Vanguard Charitable then cuts a check to the nonprofit.

DAF providers handle all the logistics surrounding the gift, such as liquidating non-cash assets. It then invests those assets in tax-free, high-quality, low-cost investments, so the funds start growing as quickly as possible. This increases the impact of that gift over time.

Why Donors Give Through DAFs

There are now more than $1 million DAFs in the U.S., making it one of the fastest-growing giving vehicles — particularly among millennials and Gen Z. DAF donors come from every part of American society, and their reasons for giving in this way are as diverse as the donors themselves. However, Vicky sees three themes as the core reasons people choose DAFs:

• By making these upfront contributions, donors can make a sustained commitment to charity. Rather than making one gift, they’re making many gifts over their lifetime and often through multiple generations of their family.
  
  
• Donors want to give non-cash assets, but that can be tricky. Not all organizations are set up to receive and process such gifts. But by investing those assets in a DAF, the provider will liquidate them, and then they’ll continue to grow in value until the donor is ready to make a grant.
  
  
• By working with a DAF provider, donors have access to planning data and tools and can be more thoughtful with their gifts. In fact, research by Vanguard Charitable shows that when donors make a plan for their giving, they give four times more on average than donors who don’t go through those processes.  

6 Steps for Starting a DAF Fundraising Strategy  

Through DAFs, donors can make a greater impact on the charities they love and support. So, nonprofits should make sure their donors know this is an option. To jumpstart a DAF fundraising strategy, take these six steps:

1. Keep your information updated and complete where it’s most impactful, such as in the GuideStar fundraising database and in PayPal’s new electronic grants payment solution.
   
   
2. Be clear on all fundraising materials that you accept DAF grants. Make your Employer Identification Number (EIN) as easy to find as possible.
   
   
3. Educate your teams and have a data collection strategy to capture DAF donor information from the grant payment letters you receive. This is crucial — you want to leverage donor relationships you already have, especially those you didn’t realize were giving through a DAF.
   
   
4. Be sure to end thank-you notes and impact reports to the actual donor, not the DAF provider. There’s also no need to send those donors a tax substantiation letter, as this is taken care of in the donor’s initial gift to their DAF.
   
   
5. Look at your local community foundations and any single-issue DAF sponsors whose causes align with your missions. Many of these offer specific programs to donors that involve recommending local charities.
   
   
6. Incorporate donor-advised fund gifts into your complex asset and deferred giving strategies. DAF providers take on the administrative side, leaving you free to build relationships with these donors.

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Connect with Vicky Kelberer

Learn more about Vanguard Charitable

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