Donor advised funds, also called DAFs, have become one of the most active charitable giving vehicles in philanthropy. Allowing donors to set aside funds and disburse grants to charitable organizations of their choosing has made this form of giving very attractive to donors. DAFs provide an incredible level of flexibility for supporters as well as extraordinary new opportunities for nonprofits. They are also difficult to navigate when recording gifts in your CRM, like Raiser’s Edge NXT. Today we are going to talk about 3 ways to record these in RE NXT.

What is a DAF?

To establish a DAF, a donor generally selects a sponsor that offers DAF services, such as a community foundation or investment firm like Fidelity or Schwab. When a donor makes a charitable contribution to their donor-advised fund they receive an immediate tax benefit.

After the donor contributes to the DAF, they no longer have control over that money, but as a fund advisor, they can recommend that grants be distributed from their fund to eligible charities of their choosing.

A grant from a DAF will likely be accompanied by a letter that reads something like this:

Method 1: Hard Credit to Sponsor Organization, Soft Credit to Fund Advisor

How you record these gifts in your database is determined by your organization and your internal processes.  One commonly used method is to hard credit the donation to the sponsor organization you receive payment from and soft credit the fund advisor(s) who recommended the gift.  In Raiser’s Edge this gift entry method could look something like this:

The gift, or grant, is entered on the sponsor (charitable organization) record.  In this case that is XYZ Community Foundation.  Like any other gift record include date, amount, campaign, fund and any other fields per your organization’s policies.  Adding a note in the reference/comments field can be very helpful when viewing the record later to quickly see this is a DAF grant and the donor-advised fund it came from.   

Lastly, soft-credit the fund advisor(s) for the grant.  While they should not be provided a receipt for tax purposes, you will likely still want to thank them for recommending the grant, and the soft-credit allows for including this when calculating giving for recognition of your donors.

Method 2: Hard Credit to Fund Advisor, Soft Credit to Sponsor Organization

Another method some charities prefer for recording DAF grants is to reverse it so that the gift record is a hard credit on the fund advisor’s record with a soft-credit to the sponsoring organization.  

Method 3: Hard Credit to Fund Advisor, No Soft Credit

Your charity might choose to use a gift attribute to identify the sponsoring organization.  One negative to this is if there is a need to search for DAF sponsoring organizations you would have to query on the attributes rather than use a constituent search.  On the positive side though, this eliminates the need for an additional constituent record.  Bonus, if  the gift attribute will only identify DAF sponsor organizations it can also be used to query for DAF gifts!

Be Consistent!

Whatever your organization’s policy is for recording DAFs, the key is to be consistent!  Maintaining written, approved policies and procedures for recording all types of donations is a best practice that will serve those entering the data, the organization and donors well. 

While Raiser’s Edge doesn’t have a built-in method for tracking DAF giving, it’s a good idea to determine a consistent method to identify these donations so you can easily query and report on them. One way is to use the gift code found on the miscellaneous tab of the gift record.  Check for a code like “Donor Advised Fund” in the gift code table, and if it doesn’t already exist, add it.  Then use the drop-down for gift code on the miscellaneous tab of the gift to select that code, like this:

If your organization uses the gift code field in such a way that this isn’t a good option, you might choose to add a gift attribute instead that will accomplish the same goal.

Receipting Best Practices

Typically the sponsoring organization doesn’t want or need a receipt or acknowledgement.  But it is standard practice to send the fund advisor an acknowledgement that thanks them, but does not include tax-deductible language because they received a tax deduction when they put the money into the donor-advised fund.

An example of such an acknowledgement letter could include language like this:

Thank you for recommending that we receive a generous grant of $10,000 for Endowed Scholarships through your donor-advised fund at XYZ Community Foundation. We have received the grant, and the funds will help provide students with an outstanding educational experience.

Keep in mind there are IRS regulations for DAFs, including prohibiting a donor from fulfilling or reducing the balance of a pledge with a payment from a DAF.  For more information on those visit Donor-advised funds | Internal Revenue Service (irs.gov)

If you are interested in an easy way to start bringing in more DAF gifts, check out this case study where we incorporated a Donor Advised Fund Widget, DAFpay™️ by Chariot onto a client’s Luminate Online Donation Forms. If you are interested in learning more, reach out today!

Post written by Teresa Skidmore