In 2022, DAF (donor-advised funds) increased 9% in 2022 to $52.16 billion, and the number of DAF accounts grew to over 1.2 million.
Donor-advised funds, a non-traditional way of giving, are becoming one of the most popular ways for donors to contribute to the missions they care about the most — and for nonprofits to become more sustainable than ever. But despite the huge opportunity that nonprofits have when it comes to DAFs, they often struggle with a few common obstacles — some that even prevent nonprofits from offering DAFs altogether.
With the right tools and strategies, though, nonprofits can make the most of DAFs and maximize their impact. In this blog, we’ve covered exactly what DAFs are, why they matter, the common obstacles nonprofits face, and how they can overcome them.
What are Donor-Advised Funds (DAFs)?
A donor-advised fund (DAF) is a powerful tool that allows donors to contribute assets, receive an immediate tax deduction, and recommend grants to their favorite charities over time.
For donors, DAFs pose lots of benefits, including:
- Immediate tax benefits: Donors receive an immediate tax deduction when they contribute to the DAF. Plus, when they donate assets, such as stocks or real estate, a DAF can help donors avoid capital gains taxes, making their charitable dollars go further.
- Flexibility and control: Donors can recommend grants to your nonprofit from their DAF whenever they choose, giving them a sense of autonomy over their gift.
- Simplicity and convenience: Donors can manage all their charitable contributions and planned giving from one account, simplifying the giving process and making it easier to track donations.
The Pros and Cons of DAFs for Nonprofits
While DAFs are appealing to donors for a number of reasons, they’re also incredibly advantageous for nonprofits. But, as we mentioned, there are a few drawbacks to consider as well.
The Pros
- Access to larger gifts: Since DAFs can invest and grow over time, donors may be able to give larger gifts than they could from their regular income. Plus, the tax advantages of DAFs can encourage donors to give more generously than they might have otherwise.
- Sustainability: Donors with DAFs often make recurring grants or contribute as part of their estate planning, providing nonprofits with a reliable stream of income.
- Diversification of funding: One of the most important keys to nonprofit success in the long term is the ability to receive funding from multiple different channels. DAFs, of course, provide another avenue for nonprofits to generate revenue.
The Cons
- Delayed disbursement: Often, there can be a lag between the donor’s contribution to the DAF and the grant to your nonprofit or a lack of payouts entirely. In fact, after experiencing consecutive new highs in 2020 and 2021, the DAF payout rate decreased to 22.5% in 2022. Sometimes, donors often forget about their DAFs entirely.
- Lack of donor connection: Some DAF donations may come without detailed information, making it difficult to acknowledge and build relationships with donors. The intermediary nature of DAFs, too, can sometimes limit direct communication between nonprofits and donors.
- Complex tracking: Some DAFs may have specific grant requirements or reporting obligations, adding administrative complexity for nonprofits.
- Lack of knowledge around DAFs: Unlike regular monetary donations, donors don’t always know they can use DAFs or that they can give other non-cash assets, which means that valuable money is often left on the table.
How to Manage and Maximize DAFs in 5 Ways
While DAFs pose lots of challenges for nonprofits, they can be overcome with the right tools, tips, and strategies — right from the beginning of the process.
Find The Right Donors
One of the most fundamental parts of maximizing DAFs for your nonprofits is finding eligible donors. Not all donors or stakeholders in your community will be the right match for this kind of donation, so concentrating your efforts on a select few groups will go a long way.
To find major donors who are eligible, be sure to:
- Segment: With a CRM tool, filter your contact list to find major donors, donors of a certain age, giving history, existing donors, geographic location, etc.
- Screen: Use wealth screening tools to identify individuals with high net worth who are likely to have DAFs.
- Survey: Leverage a marketing and communications platform to send your database a survey with custom questions in order to learn donor preferences, interests, etc.
Educate and Engage
Once you’ve identified the right donors and those who might be interested in giving them, it’s time to introduce them to DAFs, explain why they’re beneficial, and the impact they can make.
Educate
One of the biggest obstacles that nonprofits face is informing donors of the benefits of DAFs and that they’re available. To combat this, make educational content that highlights:
- Benefits: Create materials that highlight the tax benefits of contributing to DAFs, such as immediate tax deductions and avoidance of capital gains tax on appreciated assets.
- Impact: Share success stories of how previous DAF contributions have made a significant impact on your programs and services.
- Process: Some donors might not know how DAFs work at all. Create materials that break down the process of DAFs into simple, plain language in order to demystify the process and make it accessible to all types of supporters.
Engage
Once you’ve created your educational content, you’ll want to determine how you’ll communicate it to your target stakeholders. You might utilize channels like:
- Email: Send targeted email campaigns to potential donors, explaining the benefits of DAFs and how they can support your organization.
- Social media: Use social media to share information about DAFs, donor stories, and impact highlights to reach a broader audience.
- Partnerships: Build relationships with financial advisors, estate planners, and wealth managers who can recommend DAFs to their clients.
- Website: Create a dedicated online giving page on your nonprofit website explaining what DAFs are, their benefits, and how donors can use them to support your nonprofit.
- Workshops and webinars: Host informational sessions about DAFs, tax benefits, and how they support your organization’s mission.
Track the Right Data with the Right Tools
DAFs can be administratively burdensome to nonprofits — especially for nonprofits with limited staff capacity. To simplify this process, you’ll need to use a technology that allows for tracking both hard credits (which go to financial institutions) and soft credits (which go to donors), DAF compliance info, and more.
When choosing software to manage this data, look for:
- CRM integration: Use a customer relationship management system to track DAF contributions, manage donor information, and ensure timely acknowledgments. In particular, the CRM should allow you to quickly see an overview of someone’s full contributions (including both soft and hard credits), so you can understand and properly thank donors for all of their gifts.
- Workflow automation: Use software that allows for automated data entry, soft credit reports, donation reconciliation, and more.
- Grant tracking: Implement systems to track and manage DAF grants to ensure compliance and timely reporting.
The Unicorn Children‘s Foundation, for example, leveraged Giveffect reporting to efficiently manage and review soft credits, including information on who soft credits should be attributed to and how many soft credits have been made.
By using an all-in-one data management platform, the Unicorn Children’s Foundation has reduced staff time spent on donation reconciliation by at least 75%.
Read the full case study →
Encourage Complex Assets
DAF donors also have the ability to give complex assets — like crypto and stock — which can be great opportunities for funding. According to research, while the average case donation is $128, a single non-cash asset gift is exponentially higher than a single cash gift:
- Average stock donation: $5,000 – $10,000
- Average crypto donation: $6,500
And in 2022 alone, $69 million in crypto and $100 billion in stocks were donated to charity.
As Carly Evans, The Giving Block’s Sr. Nonprofit Partnerships Manager, notes, younger generations are eager to give complex assets — and have the ability to do it. “The great wealth transfer, in which $68 trillion dollars will be exchanged from the Baby Boomer generation into the hands of Gen Z Millennials and Gen X, is already happening. That means an estimated 10% of that wealth is predicted to be going into the hands of nonprofits everywhere.”
Cultivate Connection
While nonprofits often struggle with DAFs because of their potential donor anonymity, nonprofits can do their best to create connections in order to foster lasting relationships and engagement:
- Share: Offer opportunities for engagement that respect anonymity, such as general newsletters, impact stories, and events that do not require public recognition.
- Steward: Regularly update all donors, including anonymous ones, on how their contributions are making a difference. This might include developing recognition programs that honor DAF donors in ways that align with their interests and preferences.
- Support: Provide avenues for anonymous support, feedback, or suggestions. This shows that you value their input beyond financial support.
Making the Most of Donor-Advised Funds with Giveffect
DAFs can be a nonprofit’s most important source of long-term funding. From educating and encouraging donors to give non-cash assets like crypto and stock, to tracking the right data and cultivating connection — even with anonymous supporters — the right DAF strategy can allow nonprofits to bring in more donations than ever before.
With the right all-in-one nonprofit software, like Giveffect, that tracks soft and hard credits, facilitates non-cash asset donations, automates data entry, and has built-in marketing and communications tools, nonprofits can handle all of their DAF initiatives in one central place.