What is a Donor Advised Fund? 

Why should it be a big part of your school’s fundraising strategy in the New Year? 

By Ruston Pierce
Fundraising & Capitol Campaign Manager | Fortify Foundation

You may have heard that the largest transfer of wealth in the history of the United States is going to happen over the next ten years. A large portion of that transfer is going to happen through donor-advised funds.  Donor-advised funds (DAFs) have become one of the fastest-growing and most flexible ways for individuals and families to support the schools they care about. Many schools still feel unsure about what DAFs are, how they work, and what role schools can play in helping donors use them effectively. In the New Year, every school needs to make a priority to learn what DAFs are, how they can access them, and how they can help their donors use them most effectively. 

What Are Donor-Advised Funds? 

A donor-advised fund is a charitable giving account established at a public charity—often a community foundation, financial institution, or national sponsor. A donor contributes assets to the fund, receives an immediate tax deduction (which is a great incentive for donors!), and then recommends grants over time to qualified nonprofit organizations. The entity housing the DAF can help the donor be very efficient in how they support organizations. 

In essence, a DAF acts like a charitable investment account: 

• A donor puts money into the fund (cash, stock, crypto, or other assets). 
• The sponsoring organization manages and invests the funds. 
• The donor advises when and where grants should be distributed. 
• Over time, the fund can grow, allowing donors to give even more. 

Why would a donor use a DAF? 

Your donors have been incentivized by the government to start a donor-advised fund.  DAFs have become popular because they are flexible, simple, and efficient. Let’s explore their benefits below: 

1. There is an immediate tax deduction.  Donors receive the tax benefit as soon as they place money into the DAF—even if they plan to distribute grants later.  That’s a significant incentive for the donor who may need a quick tax credit. 

2. Giving complex assets becomes simple.  DAFs can easily accept appreciated stock, real estate, business interests, and other assets that schools often cannot accept directly.  This can also be a simple transfer donation if your school has an endowment.   

3. Long-term relationships can be cultivated and tracked for real impact.  Because funds can be invested and grow, donors can plan multi-year support for your school.  Many donors do not think in this way, so it’s important for the school to make sure the donor is aware of the impact recurring giving can have for the school. 

4. Administering the gift is relatively easy.  The DAF sponsor entity handles receipts, compliance, record-keeping, and charitable verification—making giving simpler for donors (and the school!) 

How does a grant from a donor advised fund work? 

Once money is in a donor’s fund, the donor can recommend grants to IRS-recognized public charities—including schools, school foundations, parent–teacher organizations, and education nonprofits. If your school has a 501(c)3, or other nonprofit entity, you are a giving option for a donor-advised fund. 

A DAF grant typically includes: 

• The grant amount 
• A letter or notice from the DAF sponsor entity 
• The donor’s fund name (unless anonymous)
• Any special instructions or restrictions 

Funds usually arrive as a check or electronic transfer from the sponsoring organization—not directly from the donor. This is an important detail because every person in your organization who could potentially receive money needs to be aware of what this looks like and how it can arrive at the school.  It would be terrible for a donor to have a grant submitted to your school but not receive a thank you because the person who received it didn’t fully understand what it was when it arrived.  

Why should my school have a plan for donor-advised funds? 

It’s lucrative, and you are a fantastic giving option for the donor.  More than $200 billion is currently sitting in donor-advised funds nationwide, waiting to be directed toward charities and nonprofits. Many families in your school community may already have DAFs but have never considered using them to support classroom needs because they just don’t realize you are an option for their giving. 

It is important that you communicate publicly that your school understands and welcomes DAFs.  This consistent communication can increase support from existing donors.  Your school can see gifts arrive in appreciated assets that you didn’t formerly receive.  Long-term, recurring gifts or scholarship programs can be set up by a donor who didn’t realize that was important for your school.  The DAF sponsor entity becomes aware of your school and could present you to additional donors you may not currently have access to.  Sponsor entities are always looking for nonprofits to make visible to the donor advised funds they house. 

What can my school do to help our donors use their DAF? 

Schools and school foundations/endowments can take simple steps to make DAF giving easy and visible. First, consistently and continually repeat that you can work with a DAF! Add language to your website, newsletters, and fundraising materials.  Make sure to include your official school name, mailing address and tax ID number on any communications regarding DAFs.  Remove the questions the audience may have on the front end, so it is very simple for the sponsor entity to cut a grant check. 

Next, you can add a ‘DAF Direct’ or similar button to your website.  If your school uses a connected foundation/endowment or qualifies for the tool, a DAF Direct widget allows donors to initiate a grant online with one click. Again, help them support you by removing as many steps as possible.  

As you communicate with donors and cultivate new donors, make sure you communicate stories of impact that came from donor-advised funds. Highlight how a DAF gift created a scholarship, bought classroom supplies, supported STEM labs, or funded a capital project. Stories inspire action and support for your mission.  These stories can also be easy connectors to showcase multi-year recurring gifts.  Make it clear that you are looking for long-term relationships with your donors.  DAFs can make it very simple to set up a long-term recurring gift from which the school can continue to update impact.  

As always, make sure you thank the donor and show the impact their gift made.  Even though the check comes from a third party, the donor needs to know it’s appreciated.  The goal should always be long-term relationship supporting the mission.  That can’t happen without consistent communication directly with the donor.  Your mission is important.  Their involvement is important.  Connect those dots for your donors and watch your giving (and mission!) grow.