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

Connie Degneau

We also hard credit the DAF and soft credit the individual. 

 

Linda Saunders

We are confident with our stance of hard crediting the donor advised fund and soft crediting the individual. Why? The individual gave the money to the DAF, and took the tax deduction at the time of that donation. The individual cannot get another tax credit when the funds leave the DAF and actually does not have final authority over where those funds from the DAF go. That is why the individual gets only soft credit.

Jennifer Broadwell

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.

 

This is exactly what we do.  From my understanding, legally, DAF gifts should be posted to the charitable org that sent you the check.  The comments about viewing RE as "not a tax database" concern me. Since development reporting is typically done from your database that data needs to be set up to a T and legally correct.  Setting up the data in a way that makes things easier isn't always good if it's not the right way to do it.  


Regarding pledges, we load pledges on the individual record, and then apply the cash gift from the DAF to that pledge.  The DAF gifts are a big pain in the rear from a reporting standpoint.  But, I will not post the gift to the individual just to make it easier.  Maybe I could incorporate a gift attribute to make reporting easier, but I'm not there yet. I'm new to RE so still figuring it out.  Prior to my current role, I worked at a large university and our CFO was very well versed in how to track our data that lined up with IRS rules.  We posted the hard credit to who wrote the check - always.  The donors were then soft credited.  Hope this helps.

Chloe Heintz

Jennifer Broadwell:

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.

 

This is exactly what we do.  From my understanding, legally, DAF gifts should be posted to the charitable org that sent you the check.  The comments about viewing RE as "not a tax database" concern me. Since development reporting is typically done from your database that data needs to be set up to a T and legally correct.  Setting up the data in a way that makes things easier isn't always good if it's not the right way to do it.  


Regarding pledges, we load pledges on the individual record, and then apply the cash gift from the DAF to that pledge.  The DAF gifts are a big pain in the rear from a reporting standpoint.  But, I will not post the gift to the individual just to make it easier.  Maybe I could incorporate a gift attribute to make reporting easier, but I'm not there yet. I'm new to RE so still figuring it out.  Prior to my current role, I worked at a large university and our CFO was very well versed in how to track our data that lined up with IRS rules.  We posted the hard credit to who wrote the check - always.  The donors were then soft credited.  Hope this helps.

 

We previously hard credited the DAF and soft credited the donor - after research on this and other forums, it seemed like this was consensus and the best practice. However at bbcon this year I was given sound advise from several consultants that this was NOT necessary based on tax standards, and we consulted with our auditors to confirm. I have changed the practice moving forward, starting this fiscal year. This has SIGNIFICANTLY eased reporting and solicitations. In order to ensure we do not provide duplicate tax deductions, we have a couple rules in place:

 

1. Gifts coming from Donor Advised Funds are given two gift attributes: one Giving Vehicle equals Yes, and the other Name on Check, with table values. Every once in awhile I have to add a new table value for a new DAF but it's really minimal lift. If this is an onerous process for your gift entry staffer you could globally add the Giving Vehicle attribute quarterly or something.
2. There is a specific tax-language-free Letter Code that we use for generating templates that are simply thank you letters (and which may include membership materials, etc.) without the tax information on it. This allows us to have a touch point with the donor and steward them without providing the duplicate receipt.

I realize this thread is some months old but I referenced it when I was reviewing our policy so I wanted to add my two cents.

Christine Cooke 2

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.

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The way the auditors want you to do it - thus best practices - is hard credit the DAF and soft credit the individuals that advised for that gift.  Other hard credit/soft credit occurances, such as matching gifts, workplace giving and those "fabulous" orgs out their functioning as the conduit/liaison/go-between the individual donor and your org.  Matches should be hard credited to the company or their matching gift foundation and SC to the individual that requested the match.  The workplace giving and other conduits like United Way and Benevity and all the others should be HC to the individual and noted who the conduit is.  It's in no way their $$ and so no reason to SC them (besides a bunch of them take out an admin fee, if it was their $$ they wouldn't be doing that)

Gracie Schild

Yes, it's always a hot topic here! We dont HC the DAF for the reason that we are not in the business of acknowledging them or soliciting them. The person who directed the money to us gets the gift on their record. That said, they get a different acknowldgement letter that contains no tax receipt, becasue the receipt is set to $0 by default in the "pass-through" master batch.  We record the name of the org that wrote the check in Gift Code (which we wern't using anyway) and in the Gift Notepad if the name is something other than our top 5 processors. The financial reporting is a little different here because the gifts to the Foundation are not posted to FE, only the gifts from the Foundation to the College (or grants and government appropriations that go straight to the College). Even if it were, the gift is recorded in full amount, the real donor did not get a tax receipt, and we can trace back which org wrote the check if necessary.  Everyone's happy.

Madeleine Holdsworth

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.

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Definitely hard credit the DAF (generally, hard credit whoever cut the check), soft credit the individual donor whose account if funded at the DAF.  I believe there are IRS rules to this effect.  Check out this article as well:  http://www.cnbc.com/2016/12/12/donor-advised-funds-can-be-great-if-you-know-the-rules.html.  Also you should explain to your colleagues that the donor is receiving their tax deduction receipt from the DAF, so they should only be soft credit by your organization.

Heather MacKenzie

My 2 cents on this conversation:  We record the donation under the donor advised fund, soft credit the individual who recommended it to the fund, and send a letter of thanks, which is NOT a tax receipt at all, to the individual.  This also lets the person/people know that we have received the donation.

Faith Murray

@Sheila Wortham, as we don't use soft credits at our org, we simply HC the donor who directed the funds so that it can appear in their total giving summaries and recognitions. Our auditors have never complained. The gifts are marked in the gift reference and gift subtype whether they come from a DAF, an IRA, or private Foundation, and the receipt amounts are taken down to $0 (except for IRAs) so the donor doesn't get a duplicate tax receipt. I know there are strong feelings and excellent arguments on both sides of the aisle, but I think the most important element is consistency and good policy documentation.

Elizabeth Johnson

@Faith Murray Very interesting. I'm curious why you aren't receipting at $0 for IRAs.

Faith Murray

@Elizabeth Johnson, because not all IRA management companies provide receipt documentation to their account holders, and not all companies deliver the checks directly to the nonprofit (some send to the donor trusting on the donor to forward it, and some issue an IRA checkbook for the donor to write out checks from their IRA). If you read this legal article on IRA distributions, it makes clear that the obligation for issuing IRA receipts lies with the nonprofit:

“Most charities will mail a receipt in the form of a letter to the donor. If the contribution is for $249 or less, a receipt is not necessary for tax purposes but if the contribution is $250 or more, a receipt is mandatory(9) for tax purposes even though the payment is made from an IRA.”

Unlike DAFs and Foundations, where the monies technically belong to the management bank, with an IRA, the funds are legally still the donor's.

Just in case a management company has issued tax statements to the donor, we do annotate the receipts, indicating that “This gift was a Qualified IRA Charitable distribution from Vanguard”, for example.

Elizabeth Johnson

@Faith Murray Thanks for this beautiful explanation!

Terri Watson 2

@Sheila Wortham I'm late to the party, but I enter DAFs the same way you do, but I also soft credit the donor and the private/public charitable company (i.e. Community Foundation, Schwab Charitable) also with a soft credit so I have the information on all records. The solicitation statement is not included on our letter when giving through a third party.

Sherry Aldrich

@Sheila Wortham We always give credit to the person / organization that writes the check. Then we soft credit 100% to the actual donor. Just be sure when you're running your queries to look at gift processing tab and check soft credit goes to donor and use amount on the gift.

Susan Olson

@Heather MacKenzie We do the same.