5 Groups That Benefit From Donor-Advised Funds

As more donor-advised fund accounts have been created over the past decade, a growing consensus has emerged that many parties benefit from them. The independent DAF Research Collaborative recently released a study that concluded that DAFs “facilitate a really wide range of philanthropic behavior.”

A colleague just spoke with a financial advisor who opened his first DAF for a client and indicated that he would open more for his other charitably minded clients. He determined that there are five groups that benefit once a DAF is created:

1. Charities welcome grants from donors who have established DAF accounts. Numerous studies have shown that DAF grants are significantly larger than direct donor contributions of cash or appreciated securities to the charities. This can be attributed to these donors receiving their tax deductions when they contribute to the DAF sponsor and knowing that these assets can only be granted to charities. With recent global events, economic stress including inflation and fear of recession, and the ups and downs of financial markets, the workload and pressure upon charities has continued to increase. Fortunately, generous grants from DAF donors have enabled these organizations to continue their missions. 
2. Individuals who depend upon support from these charities are more secure when funding is more robust. Whether it is a single parent facing food insecurity, a person with disabilities needing health care services or individuals recovering from a natural disaster, charities that receive funding from generous DAF donors are better equipped to provide this critical support to them.
3. DAF donors feel fulfilled when they initially contribute to their DAF accounts, and even more so when they make generous grants from them. Because DAF funds grow tax-free and DAF donors’ financial advisors are able to grow the assets with some DAF sponsors, DAF donors are typically able to provide greater support to their grantees than if they simply sent direct donations. Donors also are pleased to have an available asset source that allows them to quickly grant to charities, instead of having to write a check or ask their advisors to contribute stock to the charities. They also know that they will receive the greatest tax benefit possible when contributing simple assets like cash or stock, or more complex assets such as real estate or privately held business interests to the DAF. 
4. Advisors are pleased because they are helping clients achieve their philanthropic goals. In addition, the advisors themselves are having a positive impact on society. DAF accounts often lead to deeper relationships with their clients and serve as a bridge to connections with their clients’ children. Clients who have established DAFs no longer ask advisors to donate stock to a variety of charities at the end of the year. Contributions to DAF accounts are far less frequent and are usually done earlier in the year.
5. Wealth management firms benefit because of increases in the amount of assets they manage and number of referrals they receive. Clients tell their philanthropic friends about their DAF and tend to make introductions to their advisor as a result. The charitable conversation is increasingly becoming a differentiating factor for many firms. 

Because 27% of charitable contributions from individuals are first directed to DAF sponsors (with an additional 15% to foundations), advisors realize that including DAFs in their charitable conversation with clients is important to them, their clients and the charities they support.