Insights on Donor Advised Funds

Donor-advised funds are rapidly becoming the vehicle of choice for charitable giving. Anyone who processes gifts or manages acknowledgements is well aware of the steady rise in giving through charitable foundations. Understanding donor-advised funds, or DAFs, and their role in fundraising has become a critical component of stewardship.

Melinda Mosier is director of Donor Services for the New Hampshire Charitable Foundation. She has been with the foundation for 10 years, spending several years as a senior program officer before taking on her latest role. Melinda shared with The Hub the fundamentals of donor-advised funds and shared her insights on the donors who choose to give through these funds.

Tell me a little about the New Hampshire Charitable Foundation.

The New Hampshire Charitable Foundation is New Hampshire’s statewide community foundation. We manage 1,900 funds created by generous individuals, families and businesses, award more than $40 million in grants and scholarships every year and provide a permanent source of flexible philanthropic capital.                                                                                                               

What is your role as Director of Donor Services?

Donor Services helps make sure that donors are engaged, excited and inspired by their giving. We do everything from acknowledging gifts to working with colleagues to develop relationship plans and making sure donors have the opportunity to feel the impact of their giving.

Let’s start with the basics. What is a donor-advised fund and how do they work?

A donor-advised fund is a charitable fund that gives donors the ability to engage with their giving, and allows them a lot of flexibility. People make gifts into the fund, and then recommend grants from it to nonprofits.

Some people choose to spend the funds down completely over the course of a few years or during their lifetimes, others choose to establish the funds as a permanent source of philanthropic capital. 

What is the benefit to the donor to give through a donor-advised fund versus giving directly to an organization?

The New Hampshire Charitable Foundation absolutely encourages direct giving. Donor-advised funds are just another way to give to nonprofits, and, particularly at community foundations, do offer some unique benefits.

When people open DAFs at community foundations, they connect with an incredible breadth of community knowledge and knowledge of the non-profit sector to help inform their giving. We work really hard to connect generous people with great ideas and organizations. People have the opportunity to join with other donors to make a larger impact, and to be part of strategic initiatives that really move the needle on important issues.

If people want to do their giving at year’s end, but also need time to make deliberate decisions about which organizations to support, a DAF can provide some breathing room. The tax benefit from the gift accrues in that calendar year, but then people can be strategic in their giving over time.

Why don’t we always know who the donor is?

Some folks choose to do their giving anonymously – they just don’t want to be in the limelight. When they have a fund at a community foundation, grants can be made from the foundation to an eligible nonprofit while the donor maintains anonymity if they wish.

Why are we seeing an increase in the number of donor-advised funds?

I think there are a few reasons. Many families realize that donor-advised funds are a less expensive, less administrative-heavy alternative to private foundations. When someone opens a DAF at a community foundation, we administer the fund, do all the due diligence and make grants based on the fund advisors’ recommendations.

Many people use DAFs to involve their families in giving, and pass on their charitable values to children and grandchildren. You can name family members as fund advisors, and bring the family together around giving. And people are also able to name successor advisors to their funds – which means that children and grandchildren will be able to continue the family’s giving in generations to come. And it does not have to just be family – we have a number of DAFs that are advised by community members where the grants are made.

When people establish DAFs, they can do so using many different kinds of assets – not just cash. Community foundations are really adept at turning a variety of assets into cash for charitable purposes. It may be that your favorite charity may not have the internal capacity or the time to handle these types of gifts. Last year, we accepted a gift of a 2,000-acre forest. That land will be conserved, and the charitable resources generated by the sale are already at work in the community.

Do you think some donors chose DAFs to reduce direct communication?

Perhaps for some. But the main reason anyone opens any charitable fund is because they are generous and they want to give.

What is the impact on stewardship efforts?

I look at stewarding donor-advised funds as similar to stewarding individuals. After all, there is a person or family who set up the fund. If the person’s fund name is on the grant check, record it as a soft credit. Send them a thank-you, but not a gift receipt – because the tax benefit accrued when they opened the fund. Any time it is possible, let them know what their gift helped to do. Everyone wants to understand the impact of their support and that it is appreciated. If you don’t know who the donor is, send thank-you communications to the foundation or organization that holds the fund.

How can we better steward DAFs?

It’s important to understand that even a modest donor-advised fund grant is an indication of an individual’s capacity to establish a donor-advised fund in the first place. So recognize that and steward accordingly.

As a community foundation, we are always open to hearing from nonprofits. If a donor is open to us sharing information about what kinds of work they are interested in, and how they would like to interact with nonprofits, we can do that. We are all about connecting generous people to great organizations and ideas and getting charitable resources to work in communities.  

Are there any misconceptions you would like to clarify?

From the nonprofit’s perspective, donor-advised funds can be mysterious. It’s really simple. An individual sets up a charitable account -- and it’s got a few different rules -- but ultimately 100 percent of the funding benefits the community. And community foundations are able to put a lot of money to work in communities with DAFs, while providing a forever source of philanthropic capital. We have some donors who add to their DAFs each year and put the entire amount out in grants each year, others who have created endowments that allow grants to be made each year – and, as the funds grow over time, allow grants to be made that far, far exceed the original amount that the fund started with. That’s pretty great.

Mary Helen Martin
Director, Donor Relations & Stewardship
Habitat for Humanity International