What Your Nonprofit Should Know About Donor-Advised Funds

Nonprofits have a lot to look out for, including donor-advised funds. Grants from donor-advised funds have grown over 27 percent from the previous year. As these funds grow in popularity, Ii’s imperative that nonprofits know about these type of funds and know their liability exposures when working with them.

The difference between a public fund and private fund is how the funds are distributed: with a donor-advised fund, there’s no distribution requirements, meaning investment funds can be built up for over a decade without being touched. This is just one of few things that one needs to know about donor-advised funds. Everything else you need to know is listed below, from how they work to when they can be used.

How They Work

Contribute to a fund held by a charitable sponsor, receive benefits immediately. With time, donors recommend grants from the fund to their favorite charities. Besides cash, donors can also contribute assets such as stocks or real estate, which can provide substantial tax savings for the donor. These type of funds are typically invested in mutual funds or investment vehicles that grow over time, which ultimately increases the donor’s philanthropic impact.

Credit the Funds to Both the Sponsor and Donor

When you get a gift from these type of funds, they’re from a specific donor. Make sure everyone knows exactly who recommended the grant. Ensure that the gift is “soft credited” to the the specific donor that recommended the grant. A donor-advised fund is identified as the grant-maker, unless there’s been specifications made to be anonymous.

Thank Yous Should Come In Pairs

Just like how you credit them, you’re going to want to thank them. While a donor is only “soft credited,” it’s important to still give them a shout out for the effort that they put in. Thanking the donor who recommended the grant can go a long way. You can create a letter that recognizes both the sponsor and the donor who recommended the grant.

Charitable Sponsors Have No Say In the Grant

Charitable sponsors have no say in the grant and where it exactly goes. Don’t send your sponsor solicitations and other donor mailings; it’s a waste of resources. Mark your donor records as “Do Not Mail” so you don’t make the mistake of harassing them. The last thing that a nonprofit wants is a harassment claim from someone who has been kind enough to donate to their cause.

Grants From Funds Can’t Be Used For Extra Stuff

These funds can’t be used for extra stuff including events of benefits for a certain donor. All you can do is ask for a donor to commit to recommending a grant for your organization. While you can’t use the tickets for certain situations, you can give a donor event tickets to thank them for having recommended a grant.

Whenever your business works with the transaction of money, there’s always the potential for things to go wrong and claims to arise. Don’t let that happen to you. Protect your organization with a comprehensive, specialized Nonprofit Insurance program.

About David G. Sayles Insurance Services

At David G. Sayles Insurance Services, we strive to protect the investments of business owners like you. Our comprehensive policies are customized for you to provide the exact coverage you need. For more information, contact us today at (800) 439-0292.