By Helen Liu and John League

Donor-advised funds (DAFs) have experienced explosive growth recently. While DAFs are not new, their rapid expansion and strategic nature demand that health care philanthropy teams develop a clear understanding of how to attract contributions from the increasing number of donors who channel their giving through DAFs.

DAFs’ already rapid growth accelerates

The assets held in DAFs grew at a compound annual rate of 18% from 2012 to 2016, but in 2017 the amount of DAF assets surged 27%, to $110 billion, according to the National Philanthropic Trust.

Not only are there more assets in DAFs, but more donors are turning to DAFs to channel their charitable giving. In 2017, the number of DAF accounts increased 60%, to nearly 464,000.

Such rapid growth suggests that the Tax Cuts and Jobs Act of December 2017 encouraged donors to open DAF accounts to maximize their immediate tax benefits, rather than give directly to nonprofits. This means that health care philanthropy teams are increasingly likely to encounter donors who give through donor-advised funds—and that these donors will be especially selective about where they invest.

Strategic DAF donors are ready to give

Despite repeated criticisms that DAFs allow contributions to idle indefinitely, donors are not sitting on these funds. Fidelity Charitable, the largest DAF sponsor, reports that 74% of DAF assets are donated within five years of initial account creation. Payout rates for DAFs as a whole consistently exceed 20%, vs. only about 7% for private foundations.

To attract the philanthropy of donors who have sophisticated motivations and objectives for their giving, health care organizations should focus on three factors:

1. Promote planned giving. DAF donors are much more likely to have long-term gift-planning strategies and work with a financial professional than other donors. Provide them with information and opportunities for legacy gifts.
2. Demonstrate impact. Health care donors do not give just because of a tax break. They give out of gratitude for life-changing or life-saving care, or to have an impact on the quality of the care your organization can provide to the community. Elevate these priorities in your appeals to DAF donors.
3. Provide unique opportunities. Emphasize to these donors what a health care provider can do with their gift that no other nonprofit can.

Seize the opportunity in donor-advised funds

Check out our research report on DAFs, outlining essential elements of a strategy to incorporate DAF engagement into health care development team operations.

Read more