Seventy percent of nonprofits receive grants from donor-advised funds, but gaps in understanding of this  popular charitable giving method remain, new study finds. Nonprofits’ perceptions, experiences and opportunities with donor-advised funds are examined in Indiana University Lilly Family School of Philanthropy report.

A new report published by the Indiana University Lilly Family School of Philanthropy at IUPUI and funded by a grant from Schwab Charitable examines nonprofit organizations’ perceptions of donor-advised funds (DAFs) and how nonprofits solicit, manage and steward DAF gifts. The report includes recommendations for both nonprofits and DAF sponsoring organizations to improve their collaboration in order to enhance and expand charitable giving.

Nonprofits and Donor-Advised Funds: Perceptions and Potential Impacts examines DAFs from the perspective of nonprofit organizations, based on results of a national survey of nonprofits’ experiences over the past three years and in-depth nonprofit case study interviews. The report also features a spotlight on nonprofits’ experiences during the COVID-19 crisis and how DAF donors respond during times of crisis.

A large majority of nonprofits have received gifts from DAFs in the past three years. While many nonprofits have processes in place for receiving these gifts and are encouraged about their potential, the study also suggests that there are gaps in nonprofits’ understanding of this form of charitable giving. Additionally, nonprofits have concerns about DAFs’ impact on their interactions with donors.

“This new study expands understanding of a rapidly growing form of charitable giving and provides valuable suggestions for both nonprofits and DAF sponsoring organizations, based on the latest research,” said Amir Pasic, Ph.D., the Eugene R. Tempel Dean of the Lilly Family School of Philanthropy. “This report can help strengthen the relationship between DAFs and nonprofits to benefit the people and communities served by the philanthropic sector.”

Among the key findings:

• 70% of nonprofits surveyed received one or more gifts from a DAF in the past three years.
• Many nonprofits—especially those with revenue of less than $100,000—lack basic knowledge about what DAFs are and how they work.
• Nonprofits that received at least one DAF gift have more positive perceptions of DAFs and expressed fewer concerns about them than nonprofits that had not received DAF gifts.
• 60% of all respondents, whether they received a DAF gift or not, indicated some level of concern about their ability to communicate with donors who give through a DAF.
• Nonprofits that explicitly solicited for DAF gifts—for example, by talking to donors about DAFs, talking to DAF sponsoring organizations, or including information about giving through a DAF in fundraising communications—received DAF gifts at a higher rate (87%) than nonprofits in the survey that had not solicited for them.
• However, 42% of organizations that did not solicit DAF gifts also received them, suggesting that nonprofits may need to understand gifts made via DAFs and be prepared to accept and process them, whether or not they solicit such gifts.

“Nonprofit organizations have some concerns about donor-advised funds, including that they may impact communication with the donor and disrupt the nonprofit relationship with the donor. However, nonprofits are encouraged about the possibility that they can engage donors with the nonprofit’s mission through DAFs, and nonprofits perceive that use of DAFs has led to larger gift sizes,” said Una Osili, Ph.D., associate dean for research and international programs at the school.

The report includes recommendations for DAF sponsoring organizations and nonprofit organizations. For example, DAF sponsoring organizations could offer educational opportunities such as webinars for donors and nonprofit organizations to help them better understand the benefits and limitations of DAFs. Similarly, nonprofits might have opportunities to increase their receipt of DAF donations by communicating with their donors about giving from their DAFs.

“This research offers relevant, actionable insights on how donor-advised funds and nonprofits can improve communication and collaboration to promote greater donor engagement that would be additive to fundraising and development efforts,” said Kim Laughton, president of Schwab Charitable.

The report includes a spotlight on how nonprofits are addressing the COVID-19 pandemic and how DAFs respond in times of crisis. Various national DAF sponsoring organizations and community foundations have released data showing significant increases in the number and amount of donations to nonprofits from DAFs in the first part of 2020. Still, over half of nonprofits surveyed reported that they had either already experienced or expected to experience a decrease in fundraising dollars or revenue due to COVID-19. This is in line with reports that traditional funding streams for nonprofits have decreased. Given this, gifts from DAFs might offer an opportunity to lessen the negative effects of the pandemic on the philanthropic sector and society overall by infusing dollars without negatively affecting individual donors’ budgets, since the contributions have already been made to a DAF account.

For a full copy of the report, click here.

The Indiana University Lilly Family School of Philanthropy at IUPUI is dedicated to improving philanthropy to improve the world by training and empowering students and professionals to be innovators and leaders who create positive and lasting change. The school offers a comprehensive approach to philanthropy through its academic, research and international programs and through The Fund Raising School, Lake Institute on Faith & Giving, the Mays Family Institute on Diverse Philanthropy and the Women’s Philanthropy Institute. Follow us on Twitter, LinkedIn, or Instagram and “Like” us on Facebook.

Schwab Charitable is a donor-advised fund established as a service for individual investors to help increase their charitable giving. Schwab Charitable has been a pioneer in encouraging giving by enabling registered investment advisors to incorporate charitable planning into their practices. Schwab Charitable also offers a private foundation conversion service for private foundations considering a donor-advised fund as a complementary or alternative charitable vehicle.