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  • Writer's pictureDrew Schneider

The best DAF advice for donors and nonprofits from a leading Philanthropic Advisor

Dan Greenspon has been deeply embedded in the DAF market for 15+ years and walks through his best philanthropic advice he’s giving to donors & nonprofits today


In this article you’ll learn:

  • What donors are hearing from their financial advisors about DAFs

  • Common misunderstandings about DAFs by donors and nonprofits

  • Where DAF donors face challenges and what nonprofits can do to address them


When Dan Greenspon hit the desk for his first job at Vanguard Charitable in 2007, the acronym DAF was largely unknown outside of a small group of financial advisors to ultra high net worth individuals. But Dan saw right away that Donor-Advised Funds weren’t just mitigating taxes for his super wealthy clients - they were actually changing people’s giving behavior and moving significantly more money to nonprofits faster than the alternatives.


“From the beginning, DAFs were a tool to democratize philanthropy,” recalls Dan. “After 15 years in the industry, it’s amazing to see technology and attitudes toward the instrument catching up to that original intention.”

Dan, who now runs a Philanthropic Advisory firm named PhilanthroTech, has been a philanthropic financial consultant, nonprofit development director and technology leader. Throughout his career, DAFs remained the fastest growing vehicle in philanthropy and Dan never lost sight of their potential.


Now that DAFs seem to be a discussion topic in every nonprofit gathering or publication, Dan has accumulated a wealth of insight to advise all the key players in this market. He was kind enough to catch up with the Chariot team and share his top advice for Donors and Nonprofits.


 

What donors are hearing from their financial advisors about DAFs


Financial Advisors are encouraging the mass-adoption of DAFs


Dan always reiterates to clients,

“DAFs are incredibly easy and flexible tool. You can really use them for anything.”

There’s 3 things he focuses on most.


1. “Bunching” is the best way to navigate recent tax code changes


Recent tax code changes have doubled the standard deduction, resulting in the number of people itemizing deductions going from 40% of filers down to 5%

.

This has a huge impact on philanthropy because many people’s annual charitable giving no longer adds up to more than the standard deduction, meaning there’s no tax benefit incurred from their philanthropy.


That’s why the practice of “bunching” charitable giving with a Donor-Advised Fund is so powerful - making a large one-time contribution to your DAF that is worth itemizing, and granting out money in the following years. This is especially effective if there’s a year that someone has a larger taxable event (e.g. an appreciated asset sale).


2. Just get started


It’s easy to put off the initial set up and contribution, which is why Dan focuses on just how easy it is to set up and use a DAF to help clients get over that hurdle. He also finds that comparing a DAF to a charitable savings account tends to resonate with his clients and get them comfortable with the upfront commitment.


[New to Donor-Advised Funds? Learn all the basics from this DAF 101 overview]


3. Get more intentional with your philanthropy


Traditionally, when someone is making a donation, they are actually making 2 decisions at once - how much of their money they want to contribute to philanthropy and what organizations to support. The first is much more of a financial planning and tax related decision, whereas the second is impact related. Too often people are making these as a combined, rushed decision at year end. Our tax code ends up driving these urgent decisions when we should be much more thoughtful about deploying philanthropic capital.


That’s one of the best features of a DAF - it decouples these to decisions so that people can be more intentional, thoughtful and engaged with their philanthropy throughout the year. This is also positive for the nonprofits they are supporting because it leads to larger gifts, stronger relationships and more consistent support over time.


 

Weighing a Private Foundation vs. a Donor-Advised Fund


“Honestly today, you can do just about everything with a DAF that people have historically done with a private foundation. There are limited exceptions where that is not the case.”

Setting up a private foundation requires a new, separate legal entity. It involves creating a 501(c)3 registered organization, maintaining its own board, producing a 990, getting audits done and it usually costs around $15,000 to set up.


The rule of thumb used to be that if you were interested in contributing over $1 million, it made sense to explore a private foundation. Now, with all the advances in the DAF market, Dan wouldn’t recommend anyone thinking about a private foundation with less than $5 million.


Aside from extra costs and admin, the other big difference is that private foundations can incur qualified expenses like salaries. They also have legally required board meetings which institutes a clear structure of engagement, which some families appreciate.


Most of the time, those benefits are outweighed by the fact that DAFs typically have no costs, they’re more flexible, digitally native and easier to use.


 

Common misunderstandings about DAFs by donors and nonprofits


Top misunderstandings among potential DAF Donors

“The truth is that DAFs still feel like a new tool to many donors. 1.3 million DAF accounts sounds like a big number, but I believe we’re still very much at the beginning of that adoption curve relative to where this market is going.”

Dan walked us through some of the most common areas of donor concern and hesitation with DAF adoption:


1. “I don’t want someone else involved with my donation decisions”


Here’s where people most often don’t understand the function of a DAF host. The account holder retains full discretion on when they grant money out, how much to give and to whom. Most DAF sponsors are agnostic and will not deny a grant based on mission, purpose, etc. Their review is typically providing a helpful compliance function for donors, ensuring grants go to 501(c)3 charities in good standing with the IRS.


The account holder also has complete control on how the money or assets in a DAF account are invested. There are only restrictions on where money goes out of the account (only to 501(c)3 charities) and what can be received in return for those transactions (nothing! DAF grants can’t be made in exchange for gala tickets, auction items, etc.)


2. "DAFs don’t have anything to do with Planned Giving”

A common mistake made by donors (and many nonprofit fundraisers working with them!), is to not include Donor-Advised Funds in their planned giving discussions. Many donors neglect to include a bequest recommendation for their DAF should they pass away before the full balance is spent. Since most people are not setting up DAFs to exist in perpetuity, it’s a great opportunity for the donor to proactively name one or a few choice organizations to benefit in case anything should happen to them.


3. “Aren’t DAFs only for the ultra wealthy and older people?”


Historically, yes, DAF account holders tended to be in the ultra high net worth bracket and were older. But the explosion in mobile-first DAF providers with much more accessible models and fully digital experiences has upended that stereotype.Most DAF providers have low to no minimums to get started and have invested heavily in the user experience of setting up and managing Donor-Advised Funds online.


 

Addressing Donor Advised Fund criticism

“I do want to make sure tools like DAF are in fact a successful tool for philanthropy and are having a positive impact, so it’s important to have active discussion and debate. However, the vast majority of “naysayers” I’ve come across just aren’t familiar with the actual data related to DAF usage, which organizations like the National Philanthropic Trust have spent years researching.”

1. “DAF holders are withholding money from nonprofits”


20% of DAF balances tend to be granted away every year and these dollars are moving faster in and out of DAFs to charities than ever before. Alternative vehicles can take decades or lifetimes to distribute their funds (like Remainder Trusts) or limit annual payouts to 5% per year (like private foundations). Because of how low cost and accessible DAFs are, they are also incredibly efficient and maximize how much grant dollars are ultimately paid out to nonprofits vs. admin or overhead expenses like a foundation.


DAF support of nonprofits is also incredibly resilient. During the Great Recession of 2008-2009, DAF giving actually increased when all other giving went down. It’s the kind of stable support nonprofits desperately need.


[Read here about the research done on the resilience and dependability of DAF support for nonprofits]


2. “DAF gifts are too anonymous, making them untrustworthy”


Only 4.3% of DAF grants are made anonymously (according to a study by the American Enterprise Institute of grant data from the 5 largest DAF sponsors). It’s actually quite rare that DAF grants are made intentionally anonymous, it’s more common that the complaint is tied to the limited information that comes with a DAF check in the mail - not the donor’s intention.

The good news is Chariot finally provides a solution to this challenge by collecting DAF grantor’s name and email right when grants are made so the nonprofit can seamlessly steward and track those critical donors.


[For more interesting data on DAFs, check out these top 5 takeaways from Fidelity Charitable’s annual report]


 

Where DAF donors face challenges and what nonprofits can do to address them


The biggest challenges still facing DAF donors


“DAFs are far superior to other philanthropic options for most folks, but there still are common areas for improvement I’ll typically hear from clients."

Those are typically process related and due to the lack of connectivity between DAF providers and individual nonprofits. Donors and nonprofits alike wish that grant transfers were more immediate (checks or wires can often take days or weeks to arrive) and that information about the donor was shared more seamlessly.



More often than not, DAF grants are received without enough identifying information to be sure who the donor is and how to best thank them - and they almost never arrive with an email address. This often results in back and forth between an organization and their biggest supporters trying to confirm or track down gifts - which is not how any nonprofit wants to use up their precious interactions with major donors!


DAF donors also get frustrated that they can’t use their DAF as a payment option. Dan recalled,


“So many DAF donors I know will receive a solicitation and go to make a donation, but have no way to use the DAF money they’ve already set aside for this exact purpose. They’d have to navigate back to their DAF portal and go through those steps, but instead they just use a credit card for a much smaller amount and the nonprofit doesn’t even know that the person has a DAF!”

 

Which nonprofits are benefiting most from DAFs


“It’s a really exciting time for nonprofits. People across the sector are finally waking up to the enormous amount being granted from DAFs and there’s so much an organization can do to take advantage"


Some of Dan’s top recommendations to nonprofits are:


1. Educate, educate, educate

Get yourself, your team and your leadership all better informed about DAFs and the DAF market, as DAFs now make up 15% of total philanthropy and are the fastest growing segment.


2. Better tracking DAF gifts

No matter what fundraising tools or CRM platform your organization leverages, make a concerted effort to track your donors with DAFs so you can recognize and thank each donor, not the DAF itself.


3. Include DAFs in more of your Comms

Get in the habit of including language & directions related to DAFs in all kinds of communications across your organization. It’s not something that’s limited to a planned giving department - you could be interacting with a DAF holder in absolutely every fundraising stream so it should not be a siloed initiative.


4. Make it easy

It’s the little things that so often get in the way of easy DAF gifts - make sure your EIN is prominent wherever a donor is checking out your organization because that’s , feature DAFs on your ways to give page, etc.


5. Leverage better tools

Dan, who also serves as an advisor to Chariot, also was quick to point out that “Chariot is one of the most significant advancements in the DAF donor experience that I’ve ever seen. While all the DAF providers have made improvements to their own platforms, Chariot is the first company to create a seamless, integrated DAF giving experience on the nonprofit’s own giving forms that also improves internal DAF processes inside the organization. It’s a massive step change for the industry.”


Dan encourages everyone he speaks with to check out Chariot’s demo video to see for themselves how powerful this tech really is!



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