Giving money directly to a favorite charity isn't the only way U.S. taxpayers can receive an annual deduction for their donations. They can also set up an account called a donor-advised fund (DAF).
According to the IRS, a donor-advised fund is a special fund or account controlled by a section 501(c)(3) organization called a sponsoring organization. Many people set up DAFs through community foundations. Sponsoring organizations can also be public charities--such as some university alumni associations--and investment firms that manage charitable funds. Schwab and Fidelity are among the big financial services companies that manage huge sums of money in DAFs.
Briefly, an individual donor contributes a certain amount of assets -- it could be cash, stock shares or some other kind of wealth -- to a fund. Donors can deduct the full amount right away from that year's taxes. They can't get the funds back; all of it must eventually go to nonprofits, but there's no time limit. Meanwhile, the funds can be invested and continue to grow. Some donors want to pick which organizations receive grants from their DAFs. Other donors prefer to let the fund managers decide.
Increasingly, individual donors are choosing to contribute to donor-advised funds, because they can advise how funds are invested and distributed but avoid the administrative requirements and operating costs involved with running a private foundation. According to the National Philanthropic Trust, in 2018 DAFs held more than $121 billion and made $23.42 billion in grants to nonprofits, an increase in giving of 18.9 percent over the previous year.
Unlike private foundations, donor-advised funds do not have minimum payout requirements, but lawmakers are considering making similar payout rules for them.
Also, these funds can be relatively anonymous because, unlike foundations, they are not required to disclose as much information about their charitable giving. This means that finding detailed, public information about a donor-advised fund's grantmaking activities can be challenging for grantseekers and researchers.
The Council on Foundations' Community Foundation Locator can help you find community foundations in your area.
Foundation Directory, our searchable database of grantmakers, also can help you find sponsoring organizations. Try a Grantmaker Type search for "public charity." You can subscribe online, or use it for free at our Candid partner locations. Eligible nonprofits with revenue or expenses under $1M can also gain a free year of access to Foundation Directory Essential through our Go for the Gold! promotion.
Aside from community foundations most DAF managers don't offer any easy way for a nonprofit to introduce itself to a DAF or its customers. Some good ideas are to:
- Make it clear on your donations page that you accept donations from DAFs.
- Make it clear in your gift acknowledgement letters as well.
- Visit the DAF Direct site to learn more about the DAF direct widget.
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