Understanding the Donor-Advised Fund Landscape: 5 Tips for Working with Donor-Advised Funds

The Greater Kansas City Community Foundation is a Member of Nonprofit Connect. Their mission is to improve the quality of life in Greater Kansas City by increasing charitable giving, educating and connecting donors to community needs they care about. Learn more about the Greater Kansas City Community Foundation.

Donor-advised funds are the fastest-growing philanthropic vehicle, accounting for more than 3% of all charitable giving in the United States. These charitable funds, according to the IRS, are separately identified funds or accounts that are maintained and operated by a section 501(c)(3) organization, usually referred to as the sponsoring organization. There are many different prominent donor-advised fund sponsoring organizations, including community foundations across the country and commercial entities that have set up 501(c)(3)s for the purpose of sponsoring these funds.
Donor-advised funds are established by individuals, families, and even businesses to set aside charitable assets. Assets are contributed to a donor-advised fund, invested over time, and can be granted to any 501(c)(3) public charity. Donors may choose to set up a donor-advised fund rather than supporting a nonprofit directly for many reasons:

• They can invest their charitable assets which results in a greater impact across more nonprofit organizations
• They want to pass along their charitable assets to future generations
• They wish to include multiple generations of their family in formal giving decisions
• Some public charities may not have the expertise necessary to accept hard-to-value assets such as closely held business interests
• They have plans in place that include grants beyond their lifetime
• They want to donate one asset such as real estate or business interests to benefit multiple charitable organizations

Donor-advised funds continue to grow in popularity across the country. Here are a few tips for nonprofit professionals who may be working with donors who have set up donor-advised funds:
 

1. Clearly communicate your organization’s ability to accept grants from donor-advised funds: Discussing grants from donor-advised funds in major gift solicitations, throughout annual campaigns, or in any conversation with donors demonstrates your knowledge of how donor-advised funds benefit both donors and your organization. Consider showcasing your ability to receive grants from charitable funds on your website, on printed marketing materials, and in any gift solicitations.
2. Re-examine your organization’s membership structure: Donor-advised fund holders can use their funds to purchase a membership if the cost is 100% tax-deductible and the benefits are not more than incidental. Clearly outline an option for donor-advised fund holders on your website or promotional materials.

Example: In return for your contribution of $XXX from your donor-advised fund, you are entitled to the following membership benefits:

• Free admission to all exhibits at our facility.
• Free parking any time you visit.
• A 10% discount at the gift shop.
• Preferred access to ticketed events.
• Invitations to members-only exhibits.
• A calendar detailing upcoming events of interest to members.
• A keychain bearing our logo.

3. Acknowledge grants from donor-advised funds: When a donor makes a grant to a nonprofit using their donor-advised fund, they may or may not provide their contact information for recognition. If they do, it’s important to reach out to them directly to show appreciation for their donation rather than sending a letter of acknowledgment to the sponsoring organization. Grants from donor-advised funds are not tax-deductible, because the donor received a tax deduction when they made the original contribution to the donor-advised fund. Nonprofits should not send a tax receipt to the sponsoring organization or the donor, but they can send a thank you message directly to the donor.
4. Allow ticket and sponsorship opportunities for donor-advised fund holders: IRS rules do not allow donor-advised fund holders to purchase tickets from donor-advised funds, so the lowest ticket price (both the tax-deductible and non-tax-deductible portion) must be paid from a donor’s personal bank account. Any remaining sponsorship costs may be paid by a grant from a donor-advised fund, as long as the donor does not receive more than an incidental benefit in return. Logo or name recognition in event materials is not considered more than an incidental benefit.

Example: A $5,000 event sponsorship includes a table for 10 with the donor’s name or logo in event materials. If the lowest ticket price to attend the event is $100, then the donor must pay $1,000 for the table from the donor’s personal bank account ($100 × 10 seats at the table) and a grant from a donor-advised fund can cover the remaining $4,000. NOTE: If a donor chooses not to accept any benefits associated with a sponsorship (in this case, the table), the entire amount may be paid by a grant from a donor-advised fund.
 

5. Cultivate relationships with donors: It may be helpful to record gifts from donor-advised funds, including any of the donor’s contact information provided, the fund name, and the association with the sponsoring organization. Having a working knowledge of prominent donor-advised fund sponsoring organizations and how gifting and granting from charitable funds work will allow nonprofit professionals to create meaningful connections with donors who give through donor-advised funds.

Managing more than $5 billion in assets, the Greater Kansas City Community Foundation houses more than 5,000 charitable funds, administering grants on behalf of individuals, families and companies to the nonprofit organizations that are important to them. As a part of Kansas City’s vibrant nonprofit ecosystem, the Community Foundation recognizes the critical work of the public charities in our community. If your donors have donor-advised funds established at the Greater Kansas City Community Foundation, bookmark our donor-advised fund FAQs for quick access to the most asked questions.



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