Best Practices - Donor Advised Fund; Hard Credit or Soft Credit

Jessica Taylor

Whew--thanks. I thought I was missing something. We are a cooperating association of the National Park Service, so we also don't report this. Thanks for clarifying.

Darrel Spacone

This is always a tough and much discussed issue. As wikipedia states:   In the United States a donor advised fund is a charitable giving vehicle administered by a public charity created to manage charitable donations on behalf of organizations, families, or individuals. To participate in a donor advised fund, a donating individual or organization opens an account in the fund and deposits cash, securities, or other financial instruments. They surrender ownership of anything they put in the fund, but retain control over how their account is invested, and how it distributes money to charities. As stated, the original donor has relinquished ownership, recieved the tax benefits, statements, etc. The donor can only make suggestions (advise) as to where, who, when, how much, how often these funds get dispersed. They are no longer the owners, just advisers. The organizations (Community Foundation)  most often or always act accordingly on the behalf of the advisor. I am of the opinion that the DAF would get hard credit and the original owner if known, soft credit. Philanthropy can get complicated and donation ownership should always be understood. Giving thru United Way, workplace giving, etc are more examples of who should get hard or soft credit.  

Cynthia McCanne

We follow the same practice as you.

Kimberly Harris

We used to create an acutal record for the name of the DAF, e.g. "The Smith Family Charitable Fund" and put the HC there.  However, after years of issues with tracking this type of activity and trying to ensure our donors see a true picture of what they condsider their giving, we changed the way we handle this process.  We now credit the individual who recommended the grant and soft credit the DAF company, e.g., (Fidelity).  All of the records with the DAF names have been deleted and we have created an acknowledgement  letter specifcally for DAF donors.  This way the individual donor still gets thanked for their gift to our org., but it has DAF language and is not a tax receipt!  We decided to proceed this way because of the importance of stewardship!  While the DAF cut the check, the individual is who advised them to cut the check to your charity.  In addition, the DAF itself doesn't request acknowledgement and suggests on most of their back-up that if you wish to acknowledge someone you acknowledge the individual.  Kim - Texas Children's Hospital

Janice Edmiston

You are correct. The hard credit donor for your organization is the entity that issued the check and therefore receives a tax receipt letter from you. The advisor is soft credit in your donor data base and only receivesa a simple thank you with no mention of any amounts. 



The advisor receives his/her tax receipt letter from the entity.  The advisor is the entity's donor. 



If your organization issues a a tax receipt letter to the advisor, it is a "double dip".  The advisor is receiving a letter from the actual receipt organization and you. 

 

Mary GaetzScholtz

We are in the midst of an endowment campaign and many of our donors have epressed intention to give to us over multiple years (3 to 5) via their donor advised funds.  In the past, we have handled cases like this by entering a pledge for the full amount on the individual donor's record and then when payment is recieved, entering that gift on the DAF Foundation record and applying it to the individual pledge.  A tax receipt is never sent tot the individual donor just a general TY for directing your gift to us. 



However, the practice of entering the pledge on the individual donor record has now come under scrutiny.



I am wondering if others have come across this situation and if so, how they are handling.  And if not on the individual donor's record, how do you track multiple year pledges like this?







 

John Bradley 2

Hard credit to the DAF and soft credit to donor who recommended the DAF make a gift.  The donor got tax credit when they set up the fund with the particular DAF. We do send an acknowledgment (without tax deductibility language) to the donor thanking them for recommending a gift from the DAF.



John

Patti Hommes, bCRE-PRO

Mary, here's an excerpt from a recent DAF gift through Fidelitity Charitable - "No goods, services or more than incidental benefits may be provided in exchange for this grant. This grant may not satisfy a legally enforceable obligation/pledge. This grant may only support purposes deemed by you to be 100% tax deductible."



We had a lot of problems in my previous employ with staff accepting sponsorship pledges for an event, and the payment came later from the DAF. We had to make a lot of phone calls, especially since that not only violated the pledge clause but the no goods or services clause as well. Since I'm not there anymore I can't speak to how they are handling it now, but here we don't enter pledges if we know for sure it will be paid through a DAF - we keep a file of "pending" gifts.



I would love to hears other's take on this as well!

Mary GaetzScholtz

To clarify,  enter the pledge itself (hard credit)
on the DAF record and soft credit the pledge to the
individual?

I understand about the tax issue and
acknowledgments...question is just about how to track the
pledge.

Mary GaetzScholtz

Thanks Patti, This helps me understand why I can not enter the pledge on the individual donor's record.  We would like to track these "pledges" however since they abmount to significant funds over several years, and am wondering how others are doing it? 

John Heizer

I think everyone struggles with this.  Even putting the pledge on the DAF org record can be sketchy depending on the rules/structure of the DAF (the "original" donor/adviser usually doesn't have any authority to make a commitment on behalf of the DAF), but we still want to be able to recognize that we expect those $.  One way to "bend the rules" is how your organization defines a "legally enforceable obligation/pledge" (although many DAF's don't differentiate between legally enforceable and not).   I have a Gift Subtype of "pseudo pledge" that I add to these "pledges" that lets me exclude them relatively easily when the need arises.  It's not a perfect solution, but it lets me track things in ways that can keep both our fundraisers and auditors (relatively) happy.

Mary GaetzScholtz

THANKS JOHN!  I like the psuedo pledge subtype!  Now let's see if my manage does as well.

Patti Hommes, bCRE-PRO

Great idea John! Is the pseudo pledge just a placeholder for reporting purposes (meaning that when the $$ comes in you add the gift as cash and delete the pseudo pledge)?

John Heizer

My method has been to keep the pseudo pledge and apply payments to it (because our dev staff have already counted that income in their goals and don't want to double-count the payments as a new cash gift), but I can't say that would work for everyone.

Marla Hager

We have two "pseudo" SubTypes - Verbal Committment and Letter of Intent. And yes, when the real money comes in from the DAF, it goes in as a HC from them, SC to the donor as a straight gift, and the original pledge is deleted (or written down, for multi-year). We filter out those subtypes for the business office, so that there's no record of them mixed in for maturity schedules, but DOs can track all their intentions. Also works to track those for whom we're just waiting on a signed form, for easy conversion to "regular" pledge later.

Christine Robertson

I think it depends completely on how you send tax receipts/annual giving statements.  If you send them to all hard credits, then you should NOT, in my opinion, give the hard credit to the individual.  That said, you should definitely send an acknowledgment (one stripped of all tax related lingo and that clearly states that the gift came through the DAF).

Darcie Esch

Daphne Kearson:

Sheila Wortham:

How does your organization credit Donor Advised Funds?  Currently I credit gifts made through a donor advised fund as counted as coming from an organization not an individual. Donors who made the original gift to the fund (and that person's spouse or partner if applicable) should receive soft credit for the amount the fund contributed to our organization.    A few of the staff members disagree with my process.  They believe the individual(s) should be hard credited and the donor advised fund should be soft credit.  Please share how your organization handle credits to donor advised funds and gifts coming from United Way's.

. 

 

It's probably best if you ask yourself this question:  Who's money is it?

With Donor Advised Funds, the money belongs to the Donor, who is advising the comopany how and who to distribute it to.

Therefore, the Donor Advised Fund gifts should credit the Individual in RE and soft credit the Company (that the check is written against), they are simply doing as the Donor has advised them.

Hope this is helpful, as my organization has been doing it this way for many, many years.

 

IRS rules state you hard credit the DAF.

 

Debra Holcomb

Who are you going to solicit for the gift?  The individual or the donor-advised fund?  We enter the gift on the individual's record as we want to be able to solicit them again at the appropriate level in the future.  What matters is how the gift is receipted, so on the gift itself we have an attribute to indicate it's from a donor-advised fund so that the correct language is included in the acknowledgement letter.  We do the same for workplace giving and other third-party gifts. This makes dealing with soft credit (and split gifts) much easier -- your reports, donor recognition and other canned outputs will not double count the gifts and you will be able to see who drove those gifts.  If you need a report on DAF gifts, you can do that through the gift attribute.  We use the Raiser's Edge as fundraising software, not as tax-recording software, so that drives how we make our decisions on where to record the gift. 



While individuals cannot make pledges and pay them through their donor-advised fund, the individual can instruct their donor-advised fund to make a pledge (even multi-year pledges) on their behalf.  We work with individuals who give through DAFs to help them understand this distinction and encourage them to follow up with their fund advisor who can make the pledge on behalf of their fund.  If you can meet with a fund-advisor personally (ask your bank if they offer them), he/she can help you understand the nuances.

Susan Kies

We enter gifts the way Debra describes - on the individual's record.

Christina Swiszcz

We do the same thing with United Way donations. The individual would get credit as an "Other" gift type, so that we can easily track them, while also choosing to exclude those gifts from reporting. UW checks would be a total of the individual's gifts and be credited to UW.

I agree with most of the other posts about DAF, hard credit to the organization/foundation and soft credit to the individual.

 

United Way is different.  When people give to UW they can designate where their $$$ go.  UW is the tax recipient of the gift.  They issue the tax statement.  However, UW pulls out fees etc.  So you never really get the amount donated.  My last job was a UW agency  and we would enter the gifts as type "Other" sub-type United Way Designation and send a special letter with no tax information included.   We would not pull them in reports as donations/income.  Only the total amount on the UW record would get credited to the campaign.  This would allow us to not duplicate the gifts in reports, but we would know the extent of interest/support from the donor.  As the actual gift is from UW they (UW) got all the actual credit for the funds.

 

 

Jodi Carlson

Peter McKay:

 

Laura Reader:

We hard credit whoever initiated the gift. So if a donor gives through a DAF we hard credit the donor. This is not a tax database--I want to know next year who to contact to ensure we give the gift again. This is in line with Bill Connors recommendations here, slide 26: http://www.billconnors.com/media/Bill Connors - How Would You Enter THIS Gift - bbcon 2013 - post-conf.pdf

What about when a donor advised fund is not explicit in their letter about who should get the tax receipt? Also, sometimes I'm confused about whether an organization is a DAF or a Family Foundation.

 

You should take inconsideration how the IRS looks at the donation. Gifts given to a DAF or a Family Foundation are usually given tax credit from that organization. Error on the side of caution or call the other non-profit to confirm there charitable status. If I give a receipt for a gift that already has been given tax credit from another organization, I could jeopardize my organizations non-profit status with the IRS.

Connie Evans

We do the same - on the individual record

Jeff Jewell

JoAnn Strommen:

Sheila Wortham:

How does your organization credit Donor Advised Funds?  Currently I credit gifts made through a donor advised fund as counted as coming from an organization not an individual. Donors who made the original gift to the fund (and that person's spouse or partner if applicable) should receive soft credit for the amount the fund contributed to our organization.    A few of the staff members disagree with my process.  They believe the individual(s) should be hard credited and the donor advised fund should be soft credit.  Please share how your organization handle credits to donor advised funds and gifts coming from United Way's.

. 

 

Ditto what Marla posted: HC the DAF, SC the individual who requested them to give you the $. 

Generally a DAF is a 501(c)3 and will issue tax receipt to the donor who gave them the funds.  While they may state in their paperwork that they don't need a receipt they are the "donor".  Most will state that they've receipted the donor and you can send them a 'thank you' or acknowledgment of the gift. 

Whether you count it when analyzing giving as a gift from org or individual would be your org procedures.  Even if we were to count it as gift from individual, it would still be HC on org record.  I do use a constituent code of DAF if I should ever have to pull it for such analysis.

 

I agree that you would want to hard credit the individual donors and soft credit the organization. I have found that this eases reporting and also would allow you to use the soft credit processing for acknowledgement or receipting purposes

 

Susan Walters

Mary Gaetz-Scholtz:

We are in the midst of an endowment campaign and many of our donors have epressed intention to give to us over multiple years (3 to 5) via their donor advised funds.  In the past, we have handled cases like this by entering a pledge for the full amount on the individual donor's record and then when payment is recieved, entering that gift on the DAF Foundation record and applying it to the individual pledge.  A tax receipt is never sent tot the individual donor just a general TY for directing your gift to us. 


However, the practice of entering the pledge on the individual donor record has now come under scrutiny.


I am wondering if others have come across this situation and if so, how they are handling.  And if not on the individual donor's record, how do you track multiple year pledges like this?

We encounter this on a regular basis. Whenever a family foundation is involved, we try to get the paperwork to reflect the pledge made by the foundation, not the individual. But most of the time, we enter the pledge on the individual's record (so we can create accurate pledge receivable and cash flow projections). Then when the check from the DAF comes, we have to have the donor rescind a portion of their pledge in lieu of the DAF gift, and adjust down the value of the pledge in RE. It's a hassle, but it's the only thing that keeps our auidtors happy. The DAF pledge payment carries all the codes of the original pledge, even though it's not actually "applied to pledge".

Marcia Reed

We have adopted the practice of hard crediting the Donor Advised Fund company and giving soft credit to the original donor of the funds.

We reference the name of the soft credit recipients in the gift reference field and list DAF as part of the reference.

 

   

Marcia Reed 
Donor Services Manager

721 Cliff Drive
Santa Barbara, CA 93109
reed@sbccfoundation.org
Phone: (805) 730-4405 
FAX: (805) 965-3161
sbccfoundation.org

 

Brinda Goswami

Our business rule is to set-up a constituent record for Donor Advised Fund and Hard credit Donor Advised Organization[financial institute, foundation etc.] and soft credit the fund and the donor [if known]. We then create a relationship of "Donor Advised Organization" and "Donor Advised Fund". We also list the Donor Advised Organization under a gift attribute for easy reference.


Thanks,

Brinda

Christine Cooke 2

ha!  there was a whole string of this conversation that came up on the RE User Group page on Facebook last week.  Apparently a hot topic right now

Nicole S

Christine Cooke:

ha!  there was a whole string of this conversation that came up on the RE User Group page on Facebook last week.  Apparently a hot topic right now

I think it's always a hot topic

Kymberli Feng

I think it largely depends on which system you're using to enter in the gift. We use FIMS for fund accounting and all donation info gets pushed to our CRM as read-only, meaning all financial transactions must occur in this accounting system thus we hard credit the organization (fidelity charitable, us charitable trust, etc.) and soft credit the DAF account holder. We do this because it's a financial system and thus all transactions must go in as the person/org issuing the check. I assume the logic behind hard crediting the donor him/herself makes sense if you're entering all donations into CRM first and then reconciling with accounting - makes it easier to report on for donor prospecting.


However, when we receive a check from an organization that comprises of cash donations OR if it's a payroll donation (e.g. United Way, American Express, Bank of America, etc.), we hard credit the donor the actual cash donation.


Not sure if this is helpful, but it works for us. Main thing is to keep consistency. We have failed to do that on numerous occasions in the past so some donations prior to 2014 are kind of a wash at this point for us.

Nicole S

Not sure if this is helpful, but it works for us. Main thing is to keep consistency. We have failed to do that on numerous occasions in the past so some donations prior to 2014 are kind of a wash at this point for us.

Yes, always consistency!