Written by Clark Collier, Director of Giving Strategies; and Robin Elmerick, Senior Director of Effective Philanthropy
Chances are, if you work at a nonprofit, then you have some awareness of donor-advised funds (DAFs) and how they contribute to philanthropy. If not, here’s a quick overview:
DAFs are giving vehicles that allow donors to contribute money or assets to a fund with tax-deductible benefit; unlike private foundations, DAFs are not subject to any annual payout requirement. This allows donors to more strategically make charitable decisions and investments over time.
It is because of that last wrinkle that some view DAFs more as a mystery than an effective giving strategy.
But in fact, DAFs annually disburse a far greater share of their total assets than the 5% minimum of a private foundation. For example, of total DAF assets held across the CICF Collaborative (which includes the Central Indiana Community Foundation, Hamilton County Community Foundation, the Indianapolis Foundation, and Women’s Fund of Central Indiana) the annual average giving rate is 13%. That is more than twice the minimum giving rate of private foundations.
One reason people open a DAF without specific charitable causes in mind is the immediate tax deduction they receive. They take the deduction in the year they contribute, and grants to nonprofits can be made later once they have established their focus areas and identified organizations.
That’s where we come in.
HOW DAFs WORK (at the CICF Collaborative)
Nonprofit recipients of DAF grants are decided in one of two ways. The simplest way is when a DAF fundholder already knows an organization they want to support. The other way is for a nonprofit organization to be recommended by one of the philanthropic advisors within the CICF Collaborative.
In the latter case, philanthropic advisors discuss with the fundholder in addition to the other entities within the CICF Collaborative.
These entities are, themselves, in regular contact with community members and nonprofit service providers throughout our region.
Here’s a hypothetical example. Let’s say a DAF holder with CICF wants to contribute to childcare wherever it is most needed most in the region. First, we go and have a talk with in-house experts like Women’s Fund. They let us know that, according to their 2024 State of Women in Central Indiana Report, only 46% of children in Hancock County can access licensed childcare—the lowest rate of any Central Indiana county.
From there, we’ll share recommendations for the fundholder to consider, they’ll make decisions, and we’ll process their contribution from the DAF.
Great, the money has been granted… end of story? We hope not, because now our grant recipient working in childcare has an opportunity to “steward” this donor.
IMPORTANCE OF STEWARDSHIP
When an entity within the CICF Collaborative processes a DAF payment, the accompanying letter reads something like the following:
Dear Jane,
Congratulations! We are pleased to inform you that the Jane Doe Childcare Center of Hancock Co. has been awarded a grant in the amount of $3,000 from the Super-Duper Fund. A check payment for this grant award is enclosed…
The letter will also indicate which entity within the CICF Collaborative the donor’s fund is held (CICF, HCCF, or IF).
In an ideal world, Jane has administrative staff that can research the Super-Duper Fund and help her write a personalized thank-you letter. Just as likely, though, Jane is on her own for that task, along with many other aspects of her nonprofit childcare. If so, she may prioritize those other aspects over the writing of a letter. After all, how important could it be?
Well, it could be very important. Here is some non-hypothetical testimony from one of CICF’s DAF fundholders:
“Timely acknowledgment of a grant is very important to me because I believe gratitude for financial support (big or small) is an indicator of whether non-profits are paying attention to all aspects of their operations. I feel so strongly about this point that I have removed previous grant recipients from future consideration because of this lapse.”
In short, your letter is potentially more than an expression of gratitude. It may be considered evidence of a well-run and effective nonprofit.
When Jane takes time to compose a letter of thanks to the Super-Duper Fund, she is setting herself apart from the pack. But to really stick out to her donors, she needs her message to abide by the Three P’s:
Prompt
Try to send your message within a month of receiving your donation. Do you know or have a relationship with the donor? Great! Was this gift sent anonymously or without direct contact? Also, great! Send your letter to the DAF-sponsoring organization—be it CICF, HCCF, or IF. Your letter will ultimately be transmitted to the donor, even if they are anonymous. (Be sure to follow any instructions listed in the award letter.)
Personalized
If the fund is named but you don’t know it, learn a little about it. What is their mission? Use names if you can. If you believe they share your passion for a cause, let them know. This is another chance to stand out from the crowd.
Purposeful
The most important part: What does this funding enable you to do? Does it contribute to a larger effort? Will it start new programming? Even if these funds “merely” stabilize operations, let funders know why that is critical in such an unstable time.
WORTH IT
Many nonprofit organizations are looking for alternate sources of funding in the wake of government grant freezes and recissions. With such a large share of assets granted from DAFs on an annual basis, your stewardship of a DAF donor is as important as stewarding any other donor. That advice is getting truer by the day: DAFs as a form of charitable giving continue to grow in popularity.
Ultimately, good stewardship of DAF grants not only honors the intent of generous donors, but it can also strengthen a nonprofit’s impact, credibility and capacity to serve.
About the CICF Collaborative
Complex issues require innovative and coordinated solutions. The CICF Collaborative thinks big and works together on what matters most to our entire region.
The CICF Collaborative is a formal partnership among several interconnected philanthropic organizations. The five cornerstone organizations of the CICF Collaborative—Central Indiana Community Foundation, Hamilton County Community Foundation, IMPACT Central Indiana, the Indianapolis Foundation, and Women’s Fund of Central Indiana—work together to solve regional challenges in Central Indiana. Each entity within the CICF Collaborative brings deep knowledge, strong relationships, and its own individual, focused mission. The CICF Collaborative unites the entities by providing shared services, allowing more efficient and effective operations. By leveraging what we each do best, we’re able to better serve our communities and create more lasting impact together.
While each entity has its own mission and vision, we are aligned by a shared commitment to equity and philanthropy. These core values guide all our work and ensure we remain united in our purpose, even as each entity pursues its own focus area.
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