Understanding Donor Advised Funds (DAFs)
Peer-to-peer fundraising is a critical way to raise funds, expand the reach of your network and engage your biggest supporters. But it traditionally has left out the fastest growing vehicle in philanthropy, the source of the 24x larger gifts, and the preferred donating tool of your most philanthropic donors: Donor Advised Funds (DAFs).
In this article, we will cover the three key components of making the most of DAFs in peer-to-peer fundraising:
- Understanding DAFs
- The role of DAFs in Peer-to-Peer fundraising
- Strategies for optimizing DAF giving in Peer-to-Peer Fundraising
- How Charities are implementing Chariot to improve DAF giving
What are Donor Advised Funds?
Imagine having a personal giving account that empowers you to make a charitable contribution, receive an immediate tax deduction, and strategically distribute grants to 501(c)(3) organizations over time. That’s precisely what a Donor Advised Funds (DAFs) are – specialized financial accounts designed for charitable giving.
Why are Donor Advised Funds so Significant in Philanthropy?
Donor Advised Funds have witnessed an exponential rise in popularity, with over 2 million Americans utilizing this philanthropic vehicle. In recent years, DAFs have experienced unparalleled growth, emerging as the fastest-growing giving vehicle in philanthropy.
The numbers speak for themselves: DAF giving has surged by 28% year-over-year in both 2020 and 2021, while the number of DAF accounts has nearly tripled over the past four years. With annual DAF giving of nearly $46 billion, it is evident that DAFs are revolutionizing the way donors engage with charitable causes and benefiting both donors and nonprofits alike.
What are the Benefits of Donor Advised Funds for Donors?
Minimize Taxes
There are significant tax advantages to using a Ddonor Aadvised Ffund, especially when contributing appreciated securities. Normally, if someone holds a security (i.e. stock in a publicly traded company) and it has appreciated in value since they purchased it, they owe capital gains tax when they sell it. (tThe rate varies depending on the timing of the sale relative to the initial purchase). When appreciated securities are contributed to a DAF, however, there is no capital gains tax owed, so the full amount can be donated to charity.
Additionally, the tax write-off is received when the contribution is made, regardless of when the grants are dispersed over time. These two benefits could generate tax savings of over 50% of the contributed value (depending on the applicable tax rates), creating a helpful tax planning strategy for anyone active in their philanthropy.
Investment-Like Growth
A key advantage of DAFs is their ability to provide tax-free growth. DAFs allow individuals to view their philanthropy as investments, as the money or assets set aside can continue to grow over time, maximizing the impact of their giving.
Flexibility, Convenience and Control
DAFs offer complete flexibility, allowing donations to be made at any point in the future without any time constraints or distribution requirements. You also don’t have to keep track of individual gift tax receipts since you receive one tax receipt for your upfront contribution.
Accessibility for All
Setting up a DAF has never been easier. Donors can establish a DAF through established financial service companies like Fidelity, Vanguard, and Schwab, or newer providers dedicated to DAFs such as Daffy, Charityvest, Groundswell. Local community foundations also play a significant role in providing DAF services. With providers offering free accounts and even user-friendly apps, DAFs have become accessible to every consumer with internet access, democratizing philanthropy.
What are the Benefits of Donor Advised Funds for Nonprofits?
Increased Giving
DAFs have proven to be a catalyst for increased giving. The average DAF donation stands at $4,798, significantly surpassing the average cash donation online, which is $204. When giving from DAFs, individuals tend to be more generous, as the funds have already been allocated away.
Enhanced Donor Engagement
DAFs can serve as a tool to deepen donor engagement. Donors who contribute through DAFs often develop a stronger connection with the organizations they support. They become more involved, exploring opportunities for volunteering and providing additional support beyond monetary donations, fostering a sense of community and involvement.
Recurring Donations
DAF donors are more likely to become recurring donors. The structure of DAFs encourages ongoing contributions, ensuring a reliable and consistent source of support for nonprofit organizations. Furthermore, Donations through DAFs offer a higher level of reliability compared to credit cards, as credit cards often expire and individuals may forget to update their information on file with the nonprofit.
Resilience in Challenging Times
DAFs offer stability and resilience during economic downfalls. As the funds in DAF accounts are already set aside for charity and can’t be withdrawn for other purposes, donors are more inclined to from their DAFs even during tough economic times. This reliability provides a lifeline for nonprofits during periods of financial strain.
The Role of DAFs in Peer-to-Peer Fundraising
DAFs are no longer bespoke instruments or tools reserved for ultra-high net-worth individuals. Millions of Americans are leveraging DAFs for their philanthropy and most nonprofits are asking: how do I find more donors with Donor Advised Funds?
Peer-to-peer fundraising is an amazing way to “find” new DAF donors because it gives you a chance to tap into the extended networks of your current supporters and, hopefully, attract those important DAF donations.
Tapping into the Networks of Your Fundraisers
Peer-to-peer fundraising thrives on the power of personal networks. By explicitly incorporating DAFs into the fundraising process, nonprofits can help their supporters that have created individual fundraising pages to attract more DAF gifts out of their networks. Experts like Scott Harrison have found that explicitly asking for DAF gifts specifically more than doubles DAF contributions.
Amplifying Individual Contributions
DAFs allow individuals to make larger contributions to peer-to-peer fundraising campaigns. When a donor uses their DAF instead of a credit card to support a campaign, gifts are 24x as large on average. By recommending grants from their DAFs, donors can significantly increase their impact on the fundraising efforts, providing a boost to the overall campaign goals.
Leveraging Convenience and Flexibility
Donor Advised Funds offer a convenient giving experience for donors. They can contribute to their DAFs at any time, and when presented with peer-to-peer fundraising opportunities, they can easily allocate grants from their funds, making the process seamless and efficient. Improved donor experience is the most important factor in conversion for peer-to-peer campaigns.
Cultivating Long-Term Donor Relationships
By encouraging supporters to utilize their DAFs in peer-to-peer fundraising, nonprofits have the opportunity to forge long-term relationships with those donors. Once an organization knows that a new donor has a Donor-Advised Fund, they can steward them appropriately as someone that’s much more actively engaged in their philanthropy and more likely to be a major donor over time. Regular engagement and communication can help sustain ongoing support, leading to continued contributions and involvement in the organization’s mission.
Strategies for Optimizing Donor Advised Funds in Peer-to-Peer Fundraising
Educate and Empower Supporters
To maximize DAF utilization, nonprofits should educate their supporters about the benefits and potential impact of DAFs. Provide resources, such as informational guides and webinars, explaining how DAFs work and how they can be leveraged in peer-to-peer fundraising. Empower supporters by highlighting success stories and showcasing the difference their DAF contributions can make.
Tailor Fundraising Appeals
When promoting peer-to-peer fundraising campaigns, highlight projects or initiatives that are eligible for DAF grants. Emphasize the connection between the cause and the DAF donor’s philanthropic goals. Showcase the transparency and impact of donations to inspire and motivate potential supporters to allocate grants from their DAFs.
Streamline the Donation Process
Make the process of donating from a DAF as seamless as possible. Provide clear instructions on how to allocate grants and ensure that your organization’s website or fundraising platform supports DAF giving. Simplify the options and steps required, reducing any potential barriers or confusion for donors.
Culture Relationships with DAF Sponsors, Especially Locally
Engage with donor-advised fund providers and build relationships with them. Collaborate on matching opportunities, where DAFs can be leveraged to match donations raised through peer-to-peer fundraising campaigns. By partnering with DAF sponsors, you can extend the impact of contributions and encourage greater involvement from DAF donors.
How Charities are Implementing Chariot to Improve DAF Giving
Chariot is a payment option that can be added to any donation form or fundraising platform that enables 3-click DAF donations directly on a nonprofit’s website or platform – like a peer-to-peer fundraising tool. It sits alongside other payment options (i.e. credit card, PayPal, Venmo, etc.) and prevents donors from having to leave your page, jump through hoops to donate through their own DAF portal, and not hear from your organization for weeks – if at all.
By including a Donor Advised Fund giving option directly in a normal donation flow, you are reminding donors to use their DAF if they have one right at the point of inspiration. There’s no more powerful way to emphasize DAF donations and acquire new DAF donors.
Learn how Community Rowing increased their DAF donors through improved donor experience with Chariot on their most successful giving day ever.
Streaming the DAF Processing
Normally when DAF donations are made directly through a donor’s DAF portal, a nonprofit does not know about the gift until it arrives days or weeks later, typically with very limited identifying details or contact information. When a DAF gift is made through Chariot, the donor name, email, and gift size is available immediately, and checks or transfers from the DAF arrive with a Chariot ID that corresponds to your Chariot dashboard for easy reconciliation.
This means that a fundraising team can steward their most philanthropic supporters more effectively by thanking them immediately and limit time spent on the operational burdens that typically comes with processing DAF gifts.
Donor Advised Funds (DAFs) offer an invaluable avenue for enhancing peer-to-peer fundraising efforts in the nonprofit sector. By comprehending the essence of DAFs, strategically incorporating them into fundraising initiatives, and employing effective strategies, nonprofits can tap into the full potential of these funds. Embrace the power of DAFs in peer-to-peer fundraising to forge stronger connections with your supporters and drive positive change for your cause.
About the Author
Drew Schneider is the co-founder and Chief Product Officer at Chariot. Chariot builds infrastructure and intelligent tools to unlock the $234B sitting in Donor Advised Fund accounts. We make it easy for people to securely connect their DAF to the nonprofits they love.
