Donor-directed, also known as donor-advised, funds are becoming increasingly popular in the philanthropic arena. These funds allow donors to designate their contributions to specific projects, organizations, or causes they are passionate about. They offer donors a more tax-efficient way to give to charity. They also give organizations more flexibility in how the contributions are used.
Why are Donor Directed Funds So Popular?
The popularity of donor directed funds has grown significantly in recent years. This is largely due to the flexibility and control they offer donors over the money they give away.
According to recent statistics, donor-advised funds: “now take in a fifth of all individual giving in the US and have overtaken foundations as the favorite charities of the wealthy. Observe their growth in popularity since 2007: According to the NPT report, DAF assets grew by a whopping 40% from 2020 to 2021.”
How to Access Donor Directed Funds
At your organization, donor directed funds can be accessed through direct donation or a third-party platform such as an online giving platform or a donor-advised fund.
When using a third-party platform, donors may need to work with the organization managing the funds to know their contributions are properly designated and managed. Additionally, the organization must handle any taxes associated with the funds.
With money in a DDF, organizations can use it to support their programs, initiatives, and operational costs. However, organizations also need to carefully track their spending from donor advised funds—some donations come with specific requirements about how they are used.
By leveraging donor directed funds, organizations can access more resources and take advantage of the associated tax benefits. In turn, organizations can maximize the impact of their donations and ensure they are making the most out of their charitable contributions.
Pros and Cons of Donor-Advised Funds
Donor-advised funds offer organizations several advantages. However, they also come with some drawbacks, and understanding both is helpful.
Pros
- Tax benefits
- Flexibility
- Streamlined giving process
- Can create a legacy of charitable giving
Cons
- Lack of transparency
- Fees
- No legal obligation to distribute funds
- Limited options for investment
For more information on how your organization can access donor-directed funds, contact the team at M&M International today! We’d be happy to help you maximize the impact of your giving.
