Would you buy a car before taking it for a test drive? A few years ago, I was in the market for a new car, and with three kids in tow, we went to a couple of different dealerships. It was important to get everyone in the car to see how we all fit, how it rode, how it drove, etc. I also knew my three kids would find some fun “gadgets” I might not find on my own.
Test drives can be valuable. They help you understand the features of the vehicle. As I become comfortable and familiar, I find uses for the different pockets and consoles and begin to understand how it fits for me.
As a ministry leader or development officer, you must be familiar with and understand how the tools your donors are using fit you. One of the fastest growing tools is a donor advised fund.
In the past 10 years, the number of DAF accounts grew almost 300%. The average amount in DAF accounts has increased 200% over the same period. The average balance in a donor advised fund decreased 2.7% from $167,005 in 2018 to $162,556 in 2019. Grantmaking from DAFs in the first 6 months of 2020 grew by almost 30%.*
These statistics represent the vast growth of donor advised funds as a tool for generosity, and I want to break down what they mean.
The average balance is decreasing because more and more “average” people are utilizing them. This may be due to the 2017 Tax Law which created an opportunity to utilize a DAF for a bunching strategy for charitable giving. Grantmaking increased in 2020 because there was a very apparent need.
What does all of that mean for you? Simply put: donor advised funds are your friend. They are a tool utilized by more and more donors who are practicing intentional generosity and setting aside money for charitable purposes. When a donor puts money or assets into their donor advised fund, it is tax deductible at that moment, regardless of when they grant money out to a charity or ministry.
So, what can you do to maintain a “friendship” with donor advised fund holders? I have a few suggestions.
1. Understand why donors use DAFs.
There are many reasons donors utilize a DAF, including the convenience of one receipt or growth of charitable dollars in tax-free investment. DAFs also increase donor effectiveness by allowing them time to consider where to invest charitably, both from an organizational and cause perspective. Donor advised funds are equipped to accept complex asset and illiquid gifts which enables the donor to give more efficiently. Finally, a DAF can be a tool to instill generosity in a family as they make giving decisions together.
2. Invest in DAF donor relationships.
DAF donors are an important segment of your supporters. Donor advised fund holders are generous. The statistics from early 2020 prove this. When there is a need, like the COVID crisis and economic downturn, DAF holders are positioned to meet the need. Donor advised funds have a general payout rate of about 20% per year. The Signatry donors demonstrate an even higher commitment to fund disbursement, with a 71% lifetime payout rate. Our objective is to get those charitable dollars out the door and to work in the ministries serving in our communities, nation, and the world.
3. Communicate impact.
DAF donors are serious about generosity. Report impact back to donors. These donors are investment-oriented, so be sure to share the impact their charitable investment has. The Stanford Social Innovation Review shares how “DAF giving is rooted solidly in the donors’ desire for greater impact—both in terms of maximizing financial resources for giving, but also for creating a more organized and thoughtful approach to philanthropy, including selecting which nonprofits and projects to fund.”
4. Manage the logistics well.
You should treat DAF donors as individuals who are or have the potential to become major donors. They are simply using their DAF as the tool to give. However, there are a few procedural adjustments you need to make internally to steward donors well. Do not receipt donors, but do thank them. Remember, DAF donors have already been receipted. Do not allow sponsorships, pledges, or anything of value (gala ticket, etc.) to be given via a DAF. Do connect back with the DAF sponsor if the donor is anonymous. Different sponsors have different methods of passing along gratitude from the ministry.
Donor advised funds have significant features for donors of all types, and I hope this list shows you some specific ways to interact with those who use them. However, the best way to familiarize yourself with a DAF is to open one for yourself. Test drive a DAF at The Signatry to understand the process, learn the features, practice using them, and become a better advocate to your donors as you live generously with them!