Top-Level Takeaways
- Donor-advised funds (DAFs) bypass the complexities and costs associated with setting up independent foundations, providing an efficient means to manage donations, customize fund names, and ensure compliance.
- Credit unions can leverage the expertise and infrastructure of DAF managers to optimize their own philanthropic strategies.
- Credit unions should carefully evaluate DAF managers for fees, community understanding, and necessary licenses.
Does your credit union want to give back but lacks a foundation? A donor-advised fund might be the ticket.
“There are a lot of advantages to utilizing a DAF. Credit unions considering whether to create their own foundations should weigh the potential advantages of other structures as part of their strategic planning process,” says Stacy Augustine, president of CU Strategic Planning, a Callahan Company, and chair of the National Council for Financial Opportunity.
Know The Basics
A donor-advised fund is a charitable giving vehicle that manages donations for organizations and other entities, such as credit unions. It offers the flexibility of a foundation without the initial set-up costs, administrative expenses, and reporting requirements, which include a separate accounting system to track the foundation’s financials. In a DAF, the credit union “donor” directs the nonprofit managing “sponsor” to distribute money to specific charities. The sponsor verifies a recipient is a 501(c)(3) charitable organization, then makes the donation.
In addition to avoiding the set-up costs and continued compliance, administrative, and tax obligations inherent in running an independent foundation, a DAF also allows a donor to customize the fund name.
“Credit unions can, and do, use the term ‘foundation’ in their fund name to market it as their own foundation,” says Lauren Whaley, president of the Carolinas Credit Union Foundation.
In fact, more than half of the credit unions with a donor-advised fund managed by the Carolinas Credit Union Foundation have done just that. And, with the IRS approval time for new charitable organizations currently taking six to eight months, a DAF enables credit unions to immediately promote their branded charitable arm.
According to Whaley, larger organizations might use a donor-advised fund while their philanthropic giving and program complexities “grow up” into requiring their own foundations. Smaller credit unions, on the other hand, might need the expertise and infrastructure a DAF affords.
“A donor-advised fund allows you to set the speed of entry,” Whaley says. “It’s a wonderful way for credit unions to dip their toes in the water while they figure out the best structure for their future foundations. A DAF gives your credit union time to determine whether a public or private foundation is best for you. It also allows you to immediately start making donations and taking advantage of photo opportunities with big check presentations to local charities.”
Choose The Right Manager
4 Reasons To Do A DAF
Insights from Stacy Augustine, CEO of CU Strategic Planning.
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Compliance — Keeping up with regulations and recordkeeping requirements, understanding tax laws, and more can be expensive and potentially hazardous.
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Care And Feeding — Establishing a separate entity requires an ongoing commitment of time and resources. Understanding the needs of the community will likely require outside assistance.
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Management Expense — From fundraising to grant writing, tapping into the right networks takes both time and experience.
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Potential For Distraction — Will a separate foundation distract from the credit union’s strategic mission? Could a DAF help the credit union eliminate potential distractions while still accomplishing its end goals?
Charitable assets held in DAFs totaled more than $228 billion in 2022, according to the National Philanthropic Trust. It’s important, however, for a credit union to evaluate its options carefully before choosing a manager.
“Some require minimum deposits, and, of course, credit unions should evaluate the fee structure,” Whaley says. “It’s also important to consider foundations that understand the needs of the community.”
Although the Carolinas Credit Union Foundation is one of only a handful of state league foundations currently managing DAFs, there are local community foundations in every credit union’s backyard that might possess local insights and knowledge about community issues that could benefit a credit union’s philanthropic strategy. For these, too, due diligence is necessary.
“If you plan to take in public donations, make sure your DAF manager has the necessary licenses to solicit for those donations in the markets you serve,” says Atticus Simpson, senior director of community engagement and government affairs for Truliant Federal Credit Union ($5.2B, Winston Salem, NC).
Don’t Go It Alone
Simpson also advises credit unions to connect with the resources in their network to learn from others who are in various stages of the same journey. The Credit Union Foundation Network LinkedIn group is one such resource.
Whaley at the Carolinas Credit Union Foundation agrees.
“Sharing best practices is vital,” the foundation president says. “Credit unions will often share resources with one another when asked, which is what makes our industry so special.”
Meanwhile, Augustine at CU Strategic Planning reminds credit unions to consider their purpose when making choices about charitable giving.
“What’s your end goal and is there more than one way to get to there?” she says. “Weigh the pros and cons of the burdens versus the benefits, and, if you do choose a DAF, make sure it is mission-aligned with who you are as a credit union.”
And there’s another consideration for credit unions evaluating whether to start their own foundation.
“Often, I see credit unions set up their own nonprofits to apply for grants or participate in other opportunities only available to 501(c)(3) organizations,” says Augustine. “Credit unions might not realize they can participate by partnering with an eligible nonprofit.”
