Fueling Nonprofit Success: The Role of Donor-Advised Funds

Here at Greater Horizons, we regularly establish all types of charitable funds for individuals, families, companies and even charities. What’s the most popular charitable vehicle we encounter? It’s easily the donor-advised fund. These funds make up more than half of our assets and the majority of our annual contribution and grant totals.

Our donors choose to give with a donor-advised fund for many different reasons, but we primarily hear the following:

• Donor-advised fund assets are invested, so charitable assets can grow and lead to more or larger grants to charities.
• When a donor sets up a donor-advised fund, they intentionally set aside assets that can only be used for charitable giving, so they can immediately respond to needs and crises in their communities. This was very apparent in 2020, when our donors immediately responded to unprecedented needs, giving with their donor-advised funds fast and furiously to nonprofit organizations across the country.

To emphasize this last point, National Philanthropic Trust, the organization behind the annual “Donor-Advised Fund Report,” recently published “Donor-Advised Fund Spotlight: DAF Grantmaking in Times of Economic Uncertainty,” a new report highlighting the importance of donor-advised funds across economic and political cycles and in times of crisis. Here are some of the report’s key findings:

• Donor-advised fund grants to charities increased 630 percent from 2007 to 2021, which is 13 times faster than the rate of change for individual giving.
• The 15-year growth rate of donor-advised fund grants is nearly identical to the 15-year growth of donor-advised fund assets, with periods of strong growth in assets immediately followed by large increases in grants to charities.
• Donor-advised fund grants declined once (2008) while annual charitable giving from individuals declined five times in the past 15 years.
• Even when the Dow Jones Industrial Average has declined or remained relatively flat, donor-advised funds grants increased.

If you’re working for a nonprofit in development, or if you’re considering setting up a donor-advised fund, you might have questions about how these funds work. We often get questions like, “Who is responsible for deciding which charities receive grants from donor-advised funds?” (For the record, it’s not Greater Horizons. It’s typically the individuals who established and advise the fund.) Or, “What does a donor-advised fund grant check look like?”

As a 22-year-fundraising veteran now working for Greater Horizons, I understand these charitable giving vehicles can seem mysterious, but we’re here to help both donors and nonprofit professionals better understand the ins and outs of donor-advised funds.

The 2023 FreeWill Donor-Advised Fund Report focused on the trends highlighted in the robust National Philanthropic Trust 2022 DAF Report by asking nonprofits for their perspective on the popular giving vehicle. Here’s what the nonprofits FreeWill surveyed said:

• Organizations that are actively soliciting donor-advised fund grants raise 2.2 times more than those that don’t.
• Donor-advised funds are more important to nonprofit professionals than ever before; 54% of respondents think soliciting donor-advised funds will be more important during an economic downturn.
• Surveyed organizations received 56% more dollars from donor-advised fund grants in 2022 than they did in 2021. For these recipients, the average gift size increased by 24% — so not only are donors making more grants than they did the year before, but the average size of each grant is bigger.

Compelling data for sure, so what’s next? Here are some tips for our nonprofit readers:

1. Ask for donor-advised fund gifts. Fundraising and marketing materials sent to donors should include a donor-advised fund payment option. If you are unsure how donors can use their funds, check out our resource: For Nonprofits: Donor-Advised Fund FAQs
2. Cultivate donor-advised fund donors. These are donor-advised funds not funds that are directed by philanthropic advisors like me. The donor submits a grant request to Greater Horizons and decides what information they want to share with your nonprofit. If they provide their contact information, reach out directly and be sure to include them in volunteer opportunities and updates.
3. Track and acknowledge donor-advised gifts. Understanding the relationship between the donor and the donor-advised fund administrator/sponsor/provider (all terms used to describe organizations like ours) is important and should be noted in your database. For example, “the Tim & Linda Smith Family Fund gave a gift with a donor-advised fund administered by Greater Horizons.” It will best serve the nonprofit to associate the gift with both the family and Greater Horizons to follow-up for future giving.
4. Better understand donor-advised fund providers and the resources on their websites. Greater Horizons is just one of 900+ community foundations and national providers of donor-advised funds. Connect with your local community foundation to learn more about how they serve your community. The Council on Foundations has a community foundation locator that can help you identify community foundations in your area.

The charitable ecosystem in the U.S is hearty and diverse, and nonprofit organizations will always inspire and serve as a catalyst for change in our communities. Whether you’re providing or receiving donor-advised fund grants, we thank you for all you do.

Authored by: Nicole Stuke, Senior Philanthropic Advisor