Balancing fund growth and grants

Once givers learn that they can invest in a donor-advised fund and grow their capacity for charitable grants tax-free, opening a donor-advised fund is easy. Many donors start thinking about new ways to expand their giving, maximize their giving output, and how much money they want to pour into their fund each year. It’s an exciting process to watch as a fund administrator. But as the process evolves, a saving-focused mindset can kick in. Donors start to consider how they can continue growing the value of their donor-advised fund account while also sending out grants. It makes sense – as we often desire for our investment accounts to grow rather than diminish. But this mindset speaks to the importance of having conversations about donor-advised funds, strategic giving and the ultimate goal of using this financial tool. Here are some things to consider if this thought has crossed your mind. 

Get strategic with your investments and grants.

If you’re looking to grow your donor-advised fund account and continue giving grants, one thing you can do is strategically consider how you plan to use your fund. You might set a goal that looks something like this: I want to be more generous every year. Last year, I invested $100 into my donor-advised fund account and granted $50 to a nonprofit. This year, I will invest $150 in my donor-advised fund account and will grant $100. In this scenario, you’re increasing the amount of money in your donor-advised fund overall AND are granting out more than you did the year before. 

Consider opening two funds for long- and short-term giving goals.

Maybe you want to grow your donor-advised fund so you can make a large investment when the time is right. Building up enough funds for a major gift can take a while, and it’s best to let the money grow tax-free over time than to continually pull from it to make grants. Get strategic with your plan and create two donor-advised funds – one for your long-term gifting goal and the other for short-term or spontaneous gifts. Then you can leave one account untouched to grow until you’re ready for your large gift while using the other one to make grants throughout the year. 

Shift your mindset – giving doesn’t have to be about growth. 

Maybe growing your fund is important for you right now. Like the scenario we mentioned earlier, you might be planning to make a large gift that you need to build up funds for. But if that isn’t your scenario, we encourage you to pray about your giving plan and consider whether or not you need to grow your donor-advised fund account. Now might be a season of giving freely – investing in nonprofits who need support even if that reduces your DAF balance. There may come a season in the future when building your fund up again makes sense, but there is nothing wrong with having your balance decrease as you give according to the calling God puts on your heart.