(image from dafresearchcollaborative.org)
Donor-advised funds (DAFs) continue to grab a lot of headlines in the nonprofit sector and beyond. Love them or hate them, DAFs are on a dramatic growth trajectory that has people (i.e. donors) paying attention and wanting to learn more.
Why are these giving vehicles so popular, and how can nonprofit fundraisers leverage DAFs to amplify their fundraising results and community impact?
While there is no single correct answer, Jeremy R. Wells, CFRE, senior vice president of Philanthropic Services at the Saint Paul & Minnesota Foundation, provided strategies during his session “Demystifying and Leveraging Donor Advised Funds for Your Nonprofit” at the Association of Fundraising Professional’s annual conference earlier this year.
While there have been many opinions published about DAFs during the past decade, we’re finally getting some meaningful data on from the Donor Advised Fund Research Collaborative (https://bit.ly/4aT1Mfh), the National Philanthropic Trust (https://bit.ly/435uRCH), and others. This data helps illuminate who is using DAFs, how they are using them, and begins to point to how fundraisers might better approach their work with DAFs.
One aspect that hasn’t received enough attention is the potential DAFs have in leveraging non-cash assets to amplify more giving. According to data from the U.S. Bureau of the Census, assets held in cash in the U.S. amount to only 8.3% of net worth (The Wealth of Households: 2020, Donald Hays and Briana Sullivan). Yet, cash continues to be one of the most common gift nonprofits ask for and receive.
One great example of unlocking more philanthropy via DAFs is through gifts of real estate. According to the same U.S. Bureau of the Census report, real estate makes up nearly 30% of household net worth and creates an enormous philanthropic opportunity. One big obstacle, however, is the reality that most fundraisers aren’t prepared to ask for, receive, or liquidate these more complex gifts. Another challenge is the fact that most people support multiple charities, and it is often difficult to consider ways to gift a tangible asset to multiple organizations.
According to information from consultancy Ren in Indianapolis, Indiana, the average donor in the U.S. supports 4.5 nonprofits annually with affluent donors supporting as many as seven (https://bit.ly/4hqKN6x).
This is where DAFs come in. Not only are most DAF sponsors set up to receive and liquidate these sorts of non-cash gifts, once they are liquidated, the donor advisors are then able to recommend grants to multiple nonprofits and causes the donor cares about. Think about the impact of an individual donor maybe giving $5,000 a year to each of their four favorite nonprofits. All of a sudden, they’re in a position to give them a five- or six-figure gift because they were able to leverage for charitable purposes the family cabin they no longer use.
It’s important not to downplay the complexity of many of these types of noncash assets, whether that be real estate or a privately-held business interest. It’s another reason why a strong partner, such as your local community foundation, can be such a valuable resource.
There is a number of items of which to be cognizant with gifts of real estate, such as:
* How to accept the gift (directly, via an LLC structure, etc.)
* The due diligence that needs to be done both from an organizational perspective but also a regulatory one based on your community;
* How the assets will be liquidated in a thoughtful manner balancing both expediency and profit; and,
* Keeping the donors informed throughout the process to create a joyful giving experience for them.
Unless you are doing a dozen or more of these sorts of gifts annually, it can be a difficult and cumbersome process without the right partner.
Here is one other word of note on gifts of real estate. There is often the temptation by some nonprofit leaders to consider holding a piece of real estate that might be revenue-generating, such as a small apartment building or commercial property. While this is certainly an option, it’s important to remember that most nonprofit leaders do not have the wherewithal to become a real estate manager overnight. Not only is it a skill set that might not currently exist within the organization, but it also brings with it a meaningful amount of additional risk that could derail the organization’s charitable mission.
There are liability concerns that could spread across the organization if not structured appropriately should something happen on or in that piece of property. If you are considering this sort of arrangement, it’s important to receive strong legal advice and opinions about how to best structure the gift, hold the asset, and mitigate the associated risk.
One thing is certain, new strategies need to be unlocked if giving in the United States is to grow beyond the roughly 2% of gross domestic product (GDP) that it’s been hovering around for decades (https://bit.ly/4aSyWM9). Creating easier pathways for individuals to donate these non-cash assets, often via the use of a DAF, is arguably one of the easiest ways of doing so.
DAFs and strategy for disbursements from them require strategy. Each donor is unique and so is the person’s philanthropic plan. That plan must involve how to begin to have these conversations with their donors and get them to think more expansively about the potential assets they could use for charitable impact?
You must begin to familiarize yourself with these types of assets and practice having conversations about them. Do you need to become an expert in all the complexities around gifts of real estate or other non-cash assets? Thankfully, no. However, you do need to understand the basics to be able to both recognize when these gifts might be possible and be conversant in how you can introduce them to a donor.
You should establish relationships with DAF providers in your area. These providers will often be local community foundations, and you might already know them from a programmatic perspective. However, you have likely not fully explored similar relationships with the philanthropic services teams who work DAFs and donor advisors.
Finally, you should become both familiar with DAFs and conversant in how to introduce them to their donors as a means to helping them think more expansively about their giving. By understanding how to leverage these giving vehicles, you open the opportunity to amplify the impact through significantly expanded fundraising results.
A second clear DAF opportunity for fundraisers is with planned giving. While planned giving might not be the first thing people think about when it comes to DAFs, it is often a missed opportunity for most organizations.
When individuals or families open DAFs, they have the opportunity to advise on the fund, recommending grants to organizations important to them throughout their lifetimes. What is lesser known is that donor advisors also have the opportunity to select what they want done with any remaining assets in the DAF after the donors passes if those assets haven’t already been granted.
Because of this structure, leaders at any organizations receiving DAF grants should immediately consider those individuals recommending the grants as planned giving prospects. Chances are that there are additional assets still in the DAF, and fundraisers should ask those donors if they would consider leaving their respective organizations as a beneficiary of their DAF should there still be assets remaining at their time of their passing.
Planned gifts are often the largest gifts a nonprofit will ever receive, often 200 to 300 times the size of a donor’s annual gift (https://bit.ly/4grXmxn). Similarly, non-cash assets like real estate have the potential to create some of the largest philanthropic gifts many nonprofits have ever received.
These are but two of the many benefits of better leveraging DAFs. By creating greater awareness of DAFs, and by empowering more nonprofit fundraisers to understand and leverage these creative giving vehicles, you have a unique opportunity to both meet donors where they are and help advance your important missions in expanded and amplified ways.
