Do you know how they work and where they fit into your fundraising plan?
What is a Donor Advised Fund?
Broadly defined, a donor advised fund is a charitable giving vehicle. It is initially established through an up-front donation by a donor – such as an individual philanthropist or family – to an independent organization, typically a foundation or financial institution. While the donor advises how funds are distributed, all administrative, operating and governance matters remain the purview of the independent organization.
Canada’s first donor advised fund was established in 1952 by Whitford J. Van Dusen, one of the founders and first Chairman of the Vancouver Foundation. Since then, this form of individual philanthropy has come into its own. The Vancouver Foundation now administers over 450 donor advised funds.
Derek Gent, Executive Director of the Vancity Community Foundation, describes donor advised funds as an alternative to setting up a charitable foundation. Donors like the idea of setting up a donor advised fund and having someone else take care of all the administrative headaches.
“Rather than going through the whole process of incorporating as a society, managing the financial assets, having a board of directors, filling out tax forms, and issuing the tax receipts, effectively [the Vancity Community Foundation] becomes the back office.” This, Derek says, allows donors to “focus on what they are most passionate about and the difference they want to make in the community.”
Are donor advised funds replacing private foundations?
Rather than replacing private foundations as a vehicle for philanthropy, Derek tells us that donor advised funds instead serve a different market of donors compared to charitable foundations. Increasingly easy to set up and requiring an initial contribution of as little as $5,000, donor advised funds are ideal for those who have always wanted to set up a charitable foundation in order to be strategic in their giving and create a legacy, but feel that the cost and burden of setting up a registered foundation is too great. Derek sees room for continued growth in both.
Are donor advised funds open to application?
Perhaps the biggest question fundraisers ask about donor advised funds is: Can I apply for funding from them?
The answer? It depends!
“There’s such a huge variation in how [donor advised funds] can operate,” Derek explains. Some donors know exactly which charities they want to support and have no interest in deviating from that.
Other donors are quite engaged in the giving process and wish to receive applications from grantseekers. The Verna and Lionel McGillivray Fund for Children in Saskatchewan, a donor advised fund administered by the Saskatoon Community Foundation, chooses to receive applications from prospective grantseekers on an annual basis.
And then there are donors that know what issue areas they’re interested in but will invite the Foundation’s guidance on where their donations will see the greatest impact. This is where a relationship with a foundation like the Vancity Community Foundation can be pivotal to grantseekers, since, as Derek explains, “We often have grantseekers that have really cool projects, and we try as much as we can to match them up with donors.”
For more information on the Vancity Community Foundation and the 110+ donor advised funds that they administer, visit their website. To learn more about donor advised funds, check out these great resources:
- Donor-Advised Funds: Democratized Philanthropy – About.com: A short introduction on how donor-advised funds work and the benefits they offer donors.
- 2013 Donor-Advised Fund Report – National Philanthropic Trust: A comprehensive look at the recent growth in the American Donor-Advised Fund market.
- Giving Through Donor-Advised Funds – Advisor.ca: A look at the different types of donor-advised funds within the Canadian context and why some donors choose to stay anonymous.
- A Donor-Advised Fund for You – Barron’s: The president of Fidelity Charitable explains why wealthy families are increasingly using this philanthropic vehicle.
- What Every Nonprofit Should Know About Donor Advised Funds: This articles includes tips for donor-advised fund-friendly fundraising.