Donor-advised funds (DAFs) offer fast and efficient disaster response

When major disasters happen around the world – think earthquakes in Turkey, wildfires in California, war in Ukraine – a lot of Americans want to respond quickly by donating to relief organizations. And, while some of your clients are content with participating in text-to-give efforts or throwing money in a jar, others may want to do something more substantial.

The problem is, how can they make an impactful gift quickly? Will they need to move money out of one of their accounts? Which account? Will they need to liquidate assets? How will that affect their taxes and long-term wealth plan? And what organization(s) should they support?

Too often, by the time clients respond to these and other questions, the “quick” has fallen away from “quick response.” By making charitable conversations a regular part of your services, you and your team can help your client either create a DAF or use an existing DAF to give quickly when a disaster pulls at their heartstrings.

A proven tool

When Hurricane Ida swept through Louisiana in August of 2021, it devastated communities and left countless lives in disarray. When the first rounds of relief arrived, much of it came in the form of grants from DAFs.

“Many nonprofit relief and recovery agencies were able to respond swiftly and effectively because they had received substantial contributions from donor-advised funds,” Eric Fingerhut, president and CEO of the Jewish Federations of North America, and Reuben Rotman, president and CEO of the Network of Jewish Human Service Agencies, wrote in a November 2022 letter to The Hill.

To Fingerhut and Reuben, this outpouring of DAF relief was no surprise. They had seen it often. “In every major emergency in recent years, from the mass shooting at the Tree of Life Synagogue in Pittsburgh to the COVID-19 global pandemic to the current Hurricane Ian response in southwest Florida,” they added, “DAFs have helped drive massive levels of philanthropic relief. ”   

Similar stories of DAF action in the wake of a disasters are told around the world, and, these days, charitable organizations that serve on the frontlines after disasters, such as the American Red Cross, Doctors Without Borders, and Save the Children, make a point of encouraging donations from DAFs when emergencies occur.

Why? Because DAFs have proven to be uniquely suited to this type of situation, functioning, in a way, like a fire hydrant that’s always got water ready when a fire occurs.

Hard work done ahead of time

The foundation for this quick-response opportunity lies in the fact that, with a DAF, much of the work that typically surrounds a charitable gift is done ahead of time.

Clients decide how much to put into a DAF and the source of the funds when they establish the DAF. Tax deductions for the initial gift to the DAF and for future gifts are claimed in the year in which the gifts are made. This means grants from the DAF can be made without worries about timing and tax documentation.

Once the DAF is established, the client has a pool of funds from which to direct grants, and grants can then be made quickly and easily to qualified nonprofit organizations. Meanwhile, assets deposited into the DAF remain under your firm’s management, which means your team continues to work with the client to direct how funds are invested.

Furthermore, a DAF administrator like Ren takes care of record keeping, grant distributions and so on, meaning your team doesn’t have to gain new expertise and can, instead, focus on what you hired them to do. Ren even provides the requisite sponsoring charity that hosts the DAF.

Quick relief

The result of this pre-work? A vehicle for giving that has a pool of funds available for granting when the client wants, as well as a ready recipient when the client wants to put more assets to work for relief. A DAF can even accept non-cash assets and put their worth to work helping disaster victims (although some non-cash assets will take more time to liquidate).

Once established, the DAF makes it easy for a client to respond quickly to a disaster, or, if preferred, to wait and decide how best to use assets or to direct funds toward longer-term recovery efforts.

And if a client isn’t sure what organization to support in relief efforts, Ren offers resources with background on nonprofit organizations, from their mission and activities to recent financial reports, in a user-friendly portal that gives your team and your clients easy access to this information and more.

Plus, with the DAF established, in the event of a crisis the client wants to respond to, the client and your team don’t have to worry about moving or liquidating assets to make a grant, or even how such a gift might affect tax liabilities. The DAF simply makes the donation and makes a difference.

Additional benefits

DAFs also can come in handy for clients who might find it difficult to give impactful disaster-relief gifts.

For example, not everyone will have the cash on hand to make a meaningful gift in the event of a disaster. With a DAF, clients can build their charitable resources over time, giving them the opportunity to one day make a bigger gift than they might otherwise. Additionally, if your client doesn’t exceed the standard deduction amount, they can “bunch” contributions from years to come into one year by putting them into a DAF. This will increase the amount available for granting and free up cash flow for future years. Here are some other tax-smart ways to use DAFs and help clients reach their philanthropic goals.

DAFs also simplify the transparency and accountability of donations, saving the client from having to track down information about their gifts from nonprofit organizations after giving. The DAF will help them track gifts and see the impact of their donations. And, because DAFs are subject to regulatory oversight, youyou’re your clients can be certain that their charitable resources are being managed in a responsible and accountable manner.

When it comes to disaster relief, DAFs offer a powerful vehicle for preparing ahead of time to provide a quick response when disaster strikes. As such, it can be a powerful way for you to show yet another way that your institution helps clients address all of their financial goals.

To learn more about how you can help your institution’s clients prepare for quick charitable action, talk to our experts at Ren.

Is a donor-advised fund the right choice for your client?​

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