Many organizations have seen significant growth in gifts received from donor-advised funds. According to a special report released by the Indiana University Lilly Family School of Philanthropy earlier this year, there was quite significant growth between 2020 and 2021 in both contributions into and grants from Donor-Advised Funds (DAFs). Contributions to DAFs grew by more than 55% in 2021, from approximately $22.5 billion in 2020 to $35 billion in 2021, while the grants of funds coming out of DAFs also increased by 50%, from approximately $14.6 billion in 2020 to $22 billion in 2021.
As the popularity of DAFs grows, more fundraisers are working directly with individual donors who donate to charitable organizations through a DAF. During this process, remember to also discuss with donors the context of their DAF as part of their longer-term philanthropic planning goals.
In my past experience as a gift planning officer in higher education, I observed that many donors were unaware of the planning implications of maintaining an account balance within their DAF. Some donors tended to use their DAF as a pass-through by giving to the DAF and then nearly simultaneously directing the DAF to distribute funds to their many charitable priorities. However, I also observed many donors who chose to instead build up their DAF balance (for example making gifts of stock to the DAF based on advice regarding timing from their investment advisor) and then to defer their decisions about when and how much to direct for charitable distribution.
This giving pattern can lead to unintended planning consequences for the donor. Unlike most other assets, the DAF does not really belong to the donor. Those assets were already given away…to the DAF. When a donor passes away with a balance in the DAF account, the donor’s estate plan does not automatically control this asset. The question becomes…did the donor have a beneficiary designation on file with the DAF. Each DAF administrator has its own forms and process for this. In most situations, if the donor did not sign a beneficiary form, then the DAF would choose to distribute the balance based on its own philanthropic priorities, which may not be the same as the donor’s.
As you work personally with donors who support your organization, are you asking them:
- Do you tend to maintain a balance in your DAF account?
- Have you checked with the DAF administrator to ensure you have a beneficiary designation on file with them?
You are not their professional advisor, and you should always encourage them to consult their advisors. But, in my experience, it is often the frontline fundraiser who is best able to raise questions about these narrow but important planning topics. For those donors who are unaware of this, they will likely appreciate that you have brought this to their attention.