Sustainability is a watchword for nonprofit organizations. As leaders focus on the work of fulfilling the mission, there is always a dynamic tension between the work that needs to be done today and ensuring that resources are available for the work tomorrow. While this tension is always present as an undercurrent of operations and budget allocations, it becomes pivotal during times of uncertainty.
For many years, universities stockpiled fincial resources in endowments as a way to secure the future. Harvard at the end of 2019, according to US News and World Report1, boasted an endowment upwards of $40 billion. While their endowment is among the largest in the nation, many other notable universities and colleges have also followed suit, securing funds from their donors to solidify the future of their educational institutions far beyond the foreseeable future.
For donors who needed the tax benefits of philanthropy as a way to avoid capital gains, school endowments were once a logical path to giving away large amounts of money. The donor was able to invest millions into the legacy of their favorite institution, realize the entire tax benefit in that same year, and could still place enough restrictions on the gift so as not to completely lose control of the funds. This was a win-win for the donor and the university. Institutions benefited, not only from the financial value of the gift, but also from the publicity of being entrusted with such a windfall. This trust, in turn made the school a more likely investment for other large donors. Historically educational institutions have benefited from this donor perpetuated funding cycle and tax benefit vehicle.
However, the rise in popularity of Donor Advised Funds over the past decade has made it possible for donors to stockpile charitable resources, while still realizing the full tax benefits of their gift, and without having to identify a specific nonprofit recipient. While a donation to a Donor Advised Fund is still an irrevocable donation and can only be awarded to nonprofit organizations with a 501c3 designation, this giving vehicle relieves fund contributors from the need to put those charitable dollars into immediate action. By making a charitable contribution to a Donor Advised Fund, donors have the opportunity to stretch their giving over many years, without the urgency of identifying a direct recipient. This is good news for donors. They have more time to do their due diligence as philanthropists, and they can support many worthwhile causes for a longer period of time. However, the lack of urgency has also kept charitable funds from being released into the nonprofit sector.
By giving charitable gifts to a foundation or charitable trust, the donor still experiences the warm-glow and good feelings about their generosity, without actually putting their funds to work as a force for good. Giving Compass2 estimates donors amassed more than $120 billion in Donor Advised Funds by the end of 2019. David and Jennifer Rischer3, the founders of #HalfMyDAF have been challenging donors since May 2020, to join them in releasing more Donor Advised Funds into the nonprofit sector. The millions of dollars sitting in some 700,000 foundations, banks, and trusts around the country could make a significant difference for many nonprofit organizations, if put into action4.
However many nonprofits have no idea which of their donors has a DAF in place. One clue according to Giving Tuesday4, is any charitable gift that comes from an indirect source. Donor Advised Funds are disbursed from fund managers (i.e. a community foundation) rather than directly from donors. You may also receive a letter with the gift that indicates no tax receipt is necessary, because the donor has already received the maximum allowable tax benefit for that gift. Identifying these donors can be a challenge if they have chosen to give anonymously, but discovering their identity can definitely be worth the extra effort, and can open the door to future conversations. Make sure that you are building a strong enough relationship with your donors to ask about their preferred vehicles for giving. Asking simple questions about a donor’s charitable giving priorities and how they prefer to give can provide strong insights into a donor’s philanthropic goals. This understanding can help to maximize the donor’s generosity to your organization.
Some of the stockpiling in Donor Advised Funds is the lack of urgency to contribute, but another factor seems to be a natural reaction to previous economic declines, and a desire to keep funds available for a rainy day. Unfortunately, not every donor will know your organization or mission well enough to know when the rain starts. It is important for nonprofits to remain in communication with their donors and highlight how they can make a difference in the community. Awareness and communication help donors shift their focus from saving to putting their money into action.
When there is a natural disaster, national crisis, or global pandemic, donors seem to shift their priorities from Donor Advised Funds, planned gifts, and endowments to more immediate solutions. There is an awareness component critical to inspiring donors into action. They will not help if you do not let them know how they can help. During times of uncertainty, the missions of organizations that are seeking to make a difference take center stage. This shift in focus for legacy donors highlights their desire to make a difference now, rather than after they are gone. They see their neighbors and communities suffering, and want to bring immediate relief by giving while living.
For leaders who can articulate their nonprofit organization’s case for support in a compelling and urgent manner this is good news, but the mission needs to be framed in a way that emphasizes how that organization is adding value in the current climate. As schools who are training the next generation of leaders, this becomes both a discussion about how the school is serving the local community and a conversation about the character being nurtured and developed in the students of your school. How will your students change the world when it is their turn to step into leadership?
While a strong mission statement, a compelling case for support, and an active role in the community, certainly add value they are also not enough. We must invite our donors to be partners with us in creating a preferred future. Donors are looking for ways to make a difference today, not just tomorrow, but they also want to be active participants. If you don’t make a place for them in the conversation and give them a compelling reason to release those stockpiled Donor Advised Funds, they have little incentive to disburse more than the minimum amounts required. Make no mistake, it’s raining. Let’s give donors a reason to dip into those rainy day funds.
1. Kowarski, Ilana. “10 Universities With the Biggest Endowments.” U.S. News & World Report. U.S. News & World Report, September 22, 2020. https://www.usnews.com/education/best-colleges/the-short-list-college/articles/10-universities-with-the-biggest-endowments.
2. Jope, Jen, ed. “#HalfMyDAF: A Challenge To Donors To Unlock Capital For A Reimagined World.” Giving Compass, May 12, 2020. https://givingcompass.org/article/half-my-daf/.
3. Rischer, Jennifer, and David Rischer. “Join the #HalfMyDAF Movement and Put Your Money to Work.” #HalfMyDAF, June 9, 2020. https://www.halfmydaf.com/.
4. GivingTuesday. “#HalfMyDAF Challenge: Unlock $120 Billion in DAF Funds.” Vimeo, October 9, 2020. https://vimeo.com/432504135.