We must ensure that all charitable donations are made available for charitable use, rather than languishing indefinitely in donor-advised funds (DAFs). After all, donors who contribute to DAFs receive an immediate tax benefit. But nonprofits have no idea when they’ll ever see a dime.
DAFs have come under fire for the fact that they are not legally required to spend the money that they receive and can hold it for as long as they want. Plus, the fiduciary managers have an incentive to keep the money in the DAF.
Granted, many donor-advised fundholders are both generous and active, distributing on average 20% of their fund balance annually. [Thank you, conscious DAF holders!] In fact, donors who use their DAFs for charitable giving are likely to be granting money to as many as a dozen nonprofits. About 12.7% of total individual giving comes from DAFs.
Yet, as of this writing, $140 billion earmarked for charity is stuck in donor-advised funds! Further, donor-advised funds have no minimum payout rate and they are private financial products. In other words, you can’t research them as you can with a private foundation.
You can watch my webinar with Al Cantor to learn more about this issue.
The Great Mystery
The great mystery for many fundraisers is finding out which of your donors has a DAF and how to approach them for their support.
Yet such is not a mystery for fundraisers who conduct advanced prospect research on their donors, including regularly surveying them.
Advanced prospect research lets you uncover, through profiling, which of your donors is likely to have a DAF. Profiling gives you a snapshot of the kind of person who donates to your nonprofit, and it includes the attributes of who is likely to have a DAF.
For example, donors who own stock are more likely to have DAFs. Securities and Exchange Commission insider stock transactions are publicly available. They can be great indicators of giving capacity.
For sure, gathering all this information is a tall order, and hiring a prospect researcher or consultant to help fill in your fundraising prospect profiles is advisable.
When you analyze your donors’ characteristics, you can identify common traits and attributes that give you a deeper understanding of who they are and why they give to you.
After you know who among your donors is likely to have a DAF, then you have to verify that profile by surveying the donor, or having a direct conversation with them. Be sure to record the results in your donor database.
Your Immediate Action – ACE Act Legislation
“Charitable dollars ought to be doing the good they were intended for, not sitting stagnant to provide tax advantages for some and management fees for others,” says Sen. Chuck Grassley. He and Sen. Angus King, an independent of Maine, introduced the Accelerating Charitable Efforts (ACE) Act earlier this year to tighten rules on donor-advised funds and private foundations.
The ACE Act would give donor-advised funds deadlines for distributing money to charities and tighten some regulations for private foundations, which are often established by wealthy families who receive tax deductions for their charitable giving.
Under current laws, private charitable foundations like the Bill & Melinda Gates Foundation are required to give out 5% of their assets each year for charitable activities. The ACE Act would prohibit foundations from counting salaries paid to family members as part of that 5% payout.
We urge you to publicly support the ACE Act and to contact your senators to advocate for its passage.
Have a comment? We welcome your view below.
