Grantmaking from donor-advised funds (DAFs) is up — and it's up enormously. At National Philanthropic Trust, our grant dollars doubled in 2020. Other DAF sponsors reported a similar pattern. What is it about DAF donors that makes them respond so robustly to a crisis? And is this pattern of giving sustainable?
Here are three important lessons we learned about DAF donors in 2020 and why they should matter to nonprofits in the coming years:
1. DAF donors mobilize quickly. Americans have always had a giving impulse; they want to help in the face of challenges such as natural disasters, community emergencies, and neighbors in need. Giving in 2020 was marked with a different kind of urgency and qualifies as the most widespread and sustained form of "disaster giving" I've witnessed over more than four decades working in philanthropy.
The first COVID-specific grant recommendation at NPT came in early March. Within days there were dozens more, and after a few weeks we'd sent out millions of dollars in grant checks. The ability to recommend grants quickly has made an enormous difference in our donors’ philanthropic response and their willingness to support more causes than ever before.
Why it matters to charities in 2021: Swift and impactful grantmaking is certainly a credit to our donors' generosity, but it's also a testament to the organizations that are effectively communicating and addressing critical community needs. Anecdotally, we know that donors respond to appeals that help meet a specific need — the more hyper-local or hyper-targeted, the more donors understand the impact their support will have.
At the beginning of the pandemic, we saw unrestricted grants flowing to emergency funds at community foundations, hospitals, and research institutions. Those organizations were communicating specific needs: assisting out-of-work hospitality workers in the community, providing childcare for nurses, funding treatment and prevention research. The summer surge of grants in response to calls for social justice mirrored the same sense of urgency, whether it was bail funds at established organizations already engaged in social equity work or racial literacy programs in schools. Organizations large and small continue to communicate what they need and highlight the impact donor dollars are having, attracting even more of those dollars and earning donors' trust.
2. DAF donors are committed to the long-term viability of nonprofits. DAF donors are committed philanthropists. We see this in the grants they recommend. In the aggregate, DAF grant dollars have increased nearly 100 percent in the last five years. We also see it in the payout rate from DAFs. Grant payout, which is a function of how much donors grant from their DAFs relative to total assets, has been above 20 percent for the last fifteen-plus years. This means DAF donors give generously and consistently — across economic cycles, election cycles, and in the face of great challenges.
This was true in 2008 when charitable giving writ large dropped but DAF grantmaking increased, and we are seeing it again in 2020-21. Other signals of long-term commitment? More donors than ever plan recurring grants — whether monthly, quarterly, or annually — to their favorite organizations. Over 15 percent of grants from NPT in 2020 were part of a recurring grant structure, a 34 percent increase from 2019. Recurring grants are a sustainable and predictable way to support nonprofits over the long term. Donors are making unrestricted grants more than ever, too. The number of unrestricted grants NPT made was up 56 percent in 2020 and the dollar value of those grants jumped a whopping 254 percent. These increases are elements of what is known as "trust-based philanthropy," in which donors understand that charities know their constituents and causes better than anyone and trust them to do what is best to meet their immediate needs.
Why it matters to charities in 2021: To keep those regular, unrestricted dollars flowing, charitable organizations have to continue making their case for support. Communicating with donors — not DAF sponsors — to thank them and keep them engaged is critical. Although DAFs can technically give anonymously, the vast majority (at NPT, it's 97 percent) are made with the donors' names included. It's also good practice to engage every DAF donor, regardless of the size of the grant you receive. The most recent data shows that the average DAF account size is around $166,000, meaning today's sustaining donors could be tomorrow's major-gift donors.
3. DAF donors are "AND type people." DAF donors don’t look at their philanthropy through an either/or lens. They don’t choose either their longstanding favorite charity or a new one; they tend to support both. They don't have to choose either giving today or leaving a legacy tomorrow, they recommend grants now and invest for more grantmaking later. This year has highlighted exactly how important flexibility in philanthropy can be. Instead of making trade-offs, our donors recommended more grants — by volume and dollar value — in every interest area.
Why it matters to charities in 2021: If DAF donors are part of your donor base already, keep them informed and continue to solicit them for support. If they’re not, include them in your regular communication. DAF donors are open to supporting new charities and are upping their grants dollars in the face of today's challenges. The two most important ways to appeal to DAF donors are:
Make it easy. Include DAF language on your website and in your appeals like "send a check or recommend a grant from your donor-advised fund." Not only does this remind donors that your organization is eligible for support from DAFs, but it also suggests sophisticated fundraising knowledge and strategy.
Don't feel constricted by time or season. DAF donors have already signaled their commitment to philanthropy just by having a DAF — every dollar in their fund must go to charitable purposes. They've also already received their tax deduction when they made a contribution to their DAF. This means you can appeal to them whenever your organization's need is greatest. They're positioned to respond and often do so quickly.
DAFs are sometimes called the "rainy day funds" of philanthropy because DAF donors actively use their DAFs to support today's charitable priorities while saving for future needs. Dominated by a global pandemic, a renewed and intensified fight for social justice, and a deeply polarized political environment, 2020 was a year of great need. DAF donors, once again, stepped up to address those simultaneous challenges in creative, generous ways.
Eileen Heisman is the CEO of National Philanthropic Trust, the largest national, independent donor-advised fund public charity. Heisman is one of the authors of the annual DAF Report. More at NPTrust.org.