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Nonprofits Weigh In on Pros and Cons of Donor-Advised Funds

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Donor-advised funds are the darlings of the philanthropic sector in the U.S. According to National Philanthropic Trust’s annual report released in November, they are the country’s fastest-growing charitable giving vehicle, the number of DAF accounts having grown by 55% between 2017 and 2018.

At the same time — and probably not unexpectedly — critics of DAFs have emerged, and their complaints have become more voluble in recent years.

While proponents emphasize that with DAFs giving is easier and allows donors time to make considered decisions about their charity, critics knock the vehicles as not sufficiently transparent and for delaying donations to nonprofits, according to Hannah Martin, associate manager of research at the Center for Effective Philanthropy.

Some critics, Martin wrote in a recent blog post on the organization’s website, want tax rules affecting DAFs changed and distributions from the funds required within a set timeframe or a minimum percentage payout annually based on assets.

What do the nonprofit recipients of distributions from DAF account holders think about this debate? CEP decided to find out by fielding a survey of 419 nonprofit chief executives from the organization’s Grantee Voice panel. The nonprofits they lead receive at least one grant from foundations that give $5 million or more annually.

Nonprofits’ Perspective

Following are the questions CEP asked the panel and their responses, as summarized by Martin.

Do nonprofits have preferences among the types of DAF-sponsoring organizations, as defined by National Philanthropic Trust: national charities, community foundations or single-issue charities)?

Eighty percent of nonprofit leaders said they did not have a preference. Among the remainder who did specify a preference, nearly all preferred community foundations.

Martin noted that 89% of nonprofits in the survey had received funding through DAFs during the past three years. Of these, 92% received funding through DAFs at community foundations, 38% from national charities and 28% through single-issue charities.

What are the biggest advantages of receiving funding through DAFs?

Twenty-two percent of nonprofit leaders said DAFs involve less of an administrative burden as the sponsor handles all tax-related paperwork with the donor. Some chief executives said they had to put less effort into cultivating the donor because the contributions seem to come in unsolicited.

What are the biggest disadvantages of receiving funding through DAFs?

Forty-four percent of respondents complained that DAFs hamper nonprofits’ ability to build personal relationships with donors.

One chief executive cited by Martin said: “We are not able to specifically acknowledge the donor (no contact information is provided) so the relationship between the donor and the organization does not exist, which hampers long-term engagement.”

What do nonprofit CEOs think about the debates surrounding DAFs?

Overall, 46% of respondents mentioned cons and 23% mentioned pros. Among the cons, 47% said DAFs delayed nonprofits from getting donations, 26% said DAFs hampered nonprofits’ ability to build personal relationships with donors and 24% said DAFs were not transparent enough.

Fifty-three percent of nonprofit leaders on the pro side said DAFs made giving easier for donors: In just a few minutes, donors can select charities from a menu, assign donation amounts and initiate payments.

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