Throughout our series of blogs, we’ve covered several topics surrounding charitable giving, major donors, and fundraising strategies. In this article, we will take a step back and look at one of the basics of major donors — how they give their money.
Specifically, we are going to look at Donor Advised Funds (DAFs), Estate Planning/Planned Giving, and foundations. We’ll explore what each of these are, how they work, and what each may tell you about a donor.
Donor Advised Funds (DAF)
A Donor Advised Fund is a charitable investment account where individuals can contribute cash, securities, and other assets. These funds provide the donor with immediate tax advantages, allowing the money they’ve contributed to (hopefully) grow the same way any investment account would. Then, at the time of their choosing, donors can make a grant recommendation to their respective DAF manager, requesting where their funds will be given to almost any IRS-qualified charity.
Although these types of accounts are used by many major donors, of the three types of giving we’ll talk about in this blog, this is likely the most accessible to a large group of people, with over 1.2 million DAF accounts in existence today (combining for a total of around $234 billion worth of assets).
So, a donor contributing to a DAF certainly could indicate that they are the type of major donor your organization is looking for, but contributing to this type of fund doesn’t necessarily guarantee it, as they are readily accessible to a wide range of individuals.
From the perspective of a nonprofit, there are two more key things to consider on the topic of DAFs. First, there is no requirement for donors to identify themselves when giving through their DAF. While uncommon, you could receive a sizable contribution with no ability to identify the giver. In this instance, the gift would of course be welcomed, but it comes with the slight downside of an inability to build a further relationship with that person, and therefore to create a lasting partnership between them and your organization.
Somewhat conversely, statistics have shown us that while some people contribute to their DAF with an organization already in mind to which they will grant their money, many people have not yet made that decision. Oftentimes, this money sits in the account for a long period of time without any organization benefiting from it. So, bearing this in mind, it may be particularly fruitful for your nonprofit to keep its eyes and ears open for potential major donors who may already have significant funds set aside in a DAF, with no determined recipient. In this instance, direct marketing as well as intentional relationship building may lead you to a relatively easy, major donation.
Estate Planning and Planned Giving
Planned giving is a component of Estate Planning, in which people designate a major gift to a charitable organization during their life or as a part of their estate plan. This could be cash, real estate, life insurance, equity, or personal property. This is also sometimes called legacy giving.
There are a couple of pros and challenges about receiving this type of gift for nonprofits. Let’s start with the upside. It’s simple – nonprofit organizations, of course, are thrilled to receive any donation, and especially one that may considered a major gift (like a large sum of money, real estate, or stocks). Though sometimes planned giving happens only after the death of the giver, oftentimes it occurs while they are still living. And in these instances, in addition to the gift of a major donation, nonprofits also have the opportunity to build a relationship with that person to ensure they are a long-time partner of their organization.
One minor challenge with these types of gifts is that they are unpredictable in nature. Because they are sometimes contingent on things like the passing of the giver, it is not possible for organizations to include these in their budget planning or forecast. There is, of course, little downside to receiving an unexpected major donation, but there is a bit more unpredictability with this type of gift.
When you receive a planned gift from someone who has passed, it can be assumed that they likely had some sort of relationship with your organization (or at the very least, an affinity for your cause), but that particular gift marks the end of your partnership. When you receive a planned gift from someone who is still living, however, that can tell you a great deal about the donor. Of course, they’ve made it clear that your organization’s mission, vision, and values are of high priority to them. The type of gift they give may also indicate their potential as a donor and partner in the future, helping you navigate how to continue pursuing that relationship.
To summarize, planned gifts often make a significant impact on nonprofit organizations. Despite their somewhat unpredictable nature, they are often major gifts that indicate a strong desire by the donor aid your organization in its growth and mission.
Private Foundations
Of the three types of giving methods we’ve discussed, private foundations likely have the highest concentration of wealth, but the fewest number of individuals. Meaning, while those funding foundations most likely have an extremely high net-worth (though this is not guaranteed to be the case, as the only actual required finances to start a foundation are legal expenses), these types of potential donors are relatively few in number.
Typically, foundations derive all their financial support from an individual, family, or corporation. The obvious implication here is that any individual or family giving their money through a foundation has a high giving potential. But it’s likely that if you are pursuing a donor relationship with an individual or family running a foundation, that they receive a lot of requests for partnerships and donations. So, as your organization may be looking to establish this type of relationship, it’s critical that you are able to clearly demonstrate the connection between their focus and passion and your mission and vision. When you’re successful with this, the chances of successfully becoming a recipient of their funds increases significantly.
Wrapping Up
As you get to know various donors and potential donors, you will almost certainly meet people using each of these different methods to do their charitable giving. There are pros and cons of each for your organization, so it’s important to think through what you need at any given time. For instance, if you need a handful of medium to major donors, connecting with folks using a DAF but without a decided recipient is a good route. If you are looking for a very major, long-term partner, pursuing a foundation or their trustees may be worth your efforts.
As you look to meet your fundraising needs, Atticus is, of course, here to help. Our technology gives us access to information like real estate assets, net worth, and involvement with foundations. So, as you consider your organization’s fundraising strategy, we are ready and able to connect you to the types of donors you may be looking for. Whatever your fundraising needs, we look forward to partnering with you to make making a big impact as easy as possible.
