The hidden advantages of Donor Advised Funds

DAFs can be used as a valuable prospect research tool

To establish a DAF, some wealth management firms require a minimum deposit, ranging from $0 to as high as $25,000. If your nonprofit receives a gift from a DAF with a high entrance requirement, it tells you that the donor likely has a high giving capacity and should be on your radar for gifts of significance.

Even if a DAF didn’t require an establishing deposit, creating the account is enough data to prove that the prospective donor is serious about their giving. They went out of their way to create a specific account for charity, indicating that philanthropy is a priority for them. The presence of a DAF is evidence of both capacity and inclination to give, which can sometimes take multiple visits to determine, saving you and your prospective donors time and effort. 

Unsure of who gave through their DAF? You might get a check from a financial institution without the donor’s name attached. In this case, reach out to the financial institution to see if you can get the donor’s name or if they can pass along a thank-you note including your contact information on your behalf. Financial institutions won’t share information the donor doesn’t authorize, so you might have to get a little creative when it comes to stewardship. 

DAFs can connect nonprofits with philanthropic or financial advisors

Sometimes account holders with DAFs want to be charitable, but aren’t sure of where to start, or may not have the time it takes to determine which nonprofits they want to support. They may be passionate about a particular cause, but beyond that, trust their financial or philanthropic advisors to make decisions on their behalf. 

It’s worth noting that financial management institutions don’t have the final say over where gifts from DAFs are directed – they don’t want to favor particular nonprofits over others, and giving generally falls outside of their purview. However, it’s worth reaching out to organizations that manage DAFs to learn their processes. 

Advisors want to give their clients the best options for making a difference with their DAFs, and getting your nonprofit’s name in front of them can mean getting exposure to multiple, high-capacity donors. If an institution offers its their clients lists of potential nonprofits to support, see how you can get your organization on those lists. 

DAFs make non-cash gifts easier for nonprofits to accept

DAFs offer donors the chance to have a bigger impact than an outright cash gift. For example, if a donor has had good luck in the stock market, they can donate appreciated stock without paying capital gains in addition to receiving a charitable tax incentive. However, if they sell the stock and then donate the cash proceeds, they’re taxed on the sale of the stock, reducing the amount available for the nonprofit. 

For many nonprofits, particularly smaller organizations, it might be challenging to accept gifts of stock if they don’t already have the infrastructure in place. Thankfully, DAF gifts are sent to nonprofits in the form of a check, making it quick and easy for organizations to accept these gifts and put them to use. And for organizations that do accept gifts of stock, many online portals charge large fees – upwards of 5% – to process them directly. 

If you and your donors would like to avoid high taxes and processing fees, they can donate stock directly to their DAFs, and when they make distributions, you’ll receive them in the form of a check. 

Interested in expanding your prospect research efforts? In addition to DAFs, you can use demographic data and other financial indicators to discover promising major gift prospects that are already in your database, and create donor engagement efforts that speak directly to their hearts and minds.