It’s Time for Empty Pockets
In recent years, Donor Advised Funds (DAFs) have become a popular way for individuals to channel donations to qualified nonprofits. And because DAFs afford individuals useful tax and other benefits, many advisors have appropriately recommended DAFs to clients, often referring to them as "charitable savings accounts." While DAF "sponsoring organizations" technically have control over funds donated to the accounts, in practice, it is the individual donor whose advice to the sponsoring organization prompts money to be released to a specified nonprofit.
As DAF accounts have become more popular, they have accumulated substantial assets. As of the close of 2019*:
- There were about 730,000 DAF accounts in the U.S.
- The collective asset base for all DAFs exceeded $121 billion.
- The average DAF account held approximately $167,000.
- While individuals donated about $37 billion to DAFs in 2019, nonprofits received only $23 billion in grants.
A striking thing about the last statistic is that it appears there could be approximately $14 billion from 2019 contributions sitting in DAF "pockets" at the end of the year. While some of these givers may have multi-year giving strategies in place, the impact of the COVID-19 crisis on charitable organizations has been dramatic and, in many cases, has forced organizations to curtail services, reduce salaries, or furlough personnel. We believe that now is the time for givers to consider emptying their DAF pockets.
Here are some "Empty Pocket" ideas for givers and their advisors:
Sometimes a matching gift can stimulate others to give. We know of one giver who offered to match every dollar given by first-time donors to an organization. The matching gift created the opportunity for the development team at that organization to contact people who had been interested in their mission but had not yet made a financial commitment. This incentive also doubled the impact of the new dollars given.
Game Changer Gift
A husband and wife called their favorite charity and asked them what would be a "game changer" for the organization. They learned that the organization needed a significant gift to cover the cost of summer camp for disabled children whose parents could not afford the cost of camp. This couple covered that cost and then had the joy of joining the children on-site and experiencing the impact of their generosity. One other thought: If you are in leadership at a nonprofit, have you considered what a game changer for your organization might be?
Recently, this environment created an opportunity for an organization to extend its reach beyond the local community to a national scale. Leadership at the organization was concerned about the possible loss of financial support from local donors. A key donor understood the leverage afforded by the increased impact and offered to backstop any donation shortfall. Because of this, leadership could focus on pursuing the national opportunity knowing the expenses necessary to complete the transition were covered.
The funding for all three of these examples came from DAF grants. The accumulated assets in these funds allowed for more significant gifts than might have been possible otherwise. If the DAF statistics above are correct, emptying half of what could be as much as $14 billion of donations not granted in 2019 could potentially result in an additional community impact of up to $7 billion.
Now's the time for empty pockets!
*All DAF statistics are provided courtesy of Georgetown University's McDonough School of Business' New Strategies Program, an advanced management education program for nonprofit leaders.
Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes. Raymond James and its advisors do not offer tax or legal advise. To learn more about the potential risks and benefits of Donor Advisors Funds, please contact us.
Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.