Highlights from a Jan. 18 PPGGNY panel discussion moderated by Margaret M. Holman, with panelists Mark L. Hefter, Ellen Smith Israelson, and Kim Isaacs Katz.
Donor advised funds are the fastest-growing charitable giving vehicles. More than 270,000 Americans use a donor advised fund to streamline their charitable giving—and that number continues to increase. Fundraisers working on behalf of charities therefore would do well to learn more about how donor advised funds work. Ellen Israelson, JCF’s VP of Philanthropic Services, led a session on January 18 at a PPGGNY panel sharing insights into how fundraisers can work most effectively with prospects and donors who use a donor advised fund.
Myth #1: An effective fundraising strategy is to solicit donors based on the tax vehicle they use, such as Private Foundations, Trusts and donor advised funds (DAFs).
The biggest myth, she said, is that many fundraisers think that an effective fundraising strategy is to solicit donors based on the tax vehicle they use, such as a private foundation, DAF or trusts. That’s not the case. Instead, fundraisers should “think about the individual, not the vehicle.” A DAF is the back office administrator that handles filings, recordkeeping and reporting – and rarely plays a role in philanthropic advisement for the client. The typical DAF fund holder is already involved in the not-for-profit world ,serving on charity boards, supporting a dozen different charitable causes, and is looking to the DAF to help him or her be more strategic and organized, she said.
A helpful rule to remember: People give to people. Therefore, fundraisers should reach out the individual supporters as opposed to the vehicle and employ the same research and cultivation strategies they use for all individual donors.
Myth #2: DAFs never release the identity or contact information of their donors.
A second myth is that DAFs never release the identity or contact information of any of their donors. Less than four percent of the grants JCF processes are granted anonymously. The majority of donors do, in fact, provide their name and contact information on the transmittal letter that accompanies the check from JCF.
Israelson suggested that even if the gift needs to be booked as the DAF, fundraisers should put processes in place to create records for the donor and capture all of the donor information provided by the donor advised fund. “The vast majority of our donors want to be acknowledged by and have contact with the charitable organization,” she said.
Myth #3: Fund holders give up significant control as to where grants are directed, and the DAF sponsor promotes charities it favors.
Commercial and independent DAFs rarely place restrictions on grant-making other than ensuring compliance with the laws governing donor advised funds. Donors are free to recommend grants to the IRS-qualified charities of their choice, and DAFs provide $14.5 billion annually to charities in every sector (National Philanthropic Trust 2016 Donor-Advised Fund Report). In some cases, as with donor advised funds administered through a public charity such as a university, hospital or community foundation, limitations may be placed on the donors’ grant-making. These are policy decisions and not legal restrictions.
Myth #4: DAF fund holders cannot sign gift agreements.
DAFs can enter into a legally-binding gift agreement directly with the recipient public charity that specifies the gift conditions, including using the funds for a particular purpose, distributing the funds over time in multiple installments, and/or conferring a naming opportunity on the donor, etc. This pledge may be booked. The sponsoring organization will usually want written assurances from the donor that he/she will maintain a sufficient balance in the donor advised fund to pay the gift; this is often accomplished in a “side letter” between the donor and the sponsoring organization. Israelson suggested that fundraisers arrange a call or a meeting with both the donor and the sponsor of the donor advised fund before formalizing any gift agreement. The DAF sponsor can work with you to create an agreement that works for the charity, protects the donor and meets the legal requirements.
Myth #5: DAFS cannot continue your charitable legacy because the sponsor, not your heirs or your favorite charity, takes the residual assets in the fund.
DAFs that are embedded in a charitable institution, federation, or community foundation may institute policies that limit succession. However, DAF sponsors that are an independent entity or tied to a commercial firm rarely limit on succession. Jewish Communal Fund, for example, provides unlimited succession, so long as there are still assets in the fund. JCF asks for succession information at the time the fund is established, and periodically requests that donors update their succession plan. Successors can be charities or individuals, or a combination of both.