Primer on Donor Advised Funds

What Is a Donor Advised Fund?

A donor advised fund (DAF) is a charitable giving account established at a sponsoring organization (a public charity), often a community foundation. The sponsoring organization makes money on management fees of the DAF. DAFs allow donors to make charitable contributions, receive an immediate tax deduction and then recommend grants from the fund over time.

DAFs are the fastest growing form of philanthropy in the US. While there are still a relatively small number of DAFs—fewer than 2 million accounts*—they can make a mighty impact with nearly $250 billion in assets. Baby boomers, who are in line to be the recipients of the Great Wealth Transfer, comprise almost 50% of all DAF donors.

Each account is composed of contributions made by individual donors. Once the donor makes the contribution, the organization has legal control over it. However, the donor, or the donor’s representative, retains advisory privileges with respect to the distribution of funds and the investment of assets in the account.

Benefits of a DAF

  • The donor receives an immediate tax benefit at the time the donor transfers assets to the DAF (e.g., income tax deduction, capital gains tax avoidance).
  • Donors can choose how their gifts are acknowledged and what personal information they wish to share. Giving through a DAF allows a donor to contribute to charities anonymously, should they wish to be unidentifiable to the charity.
  • DAFs are generally easy to establish, and they offer the ability to make secure, longer-term plans.
  • Many DAF sponsors offer donors services such as access to online platforms that streamline record keeping and enable monitoring of their total philanthropic impact in one place. Others may offer the ability to research nonprofits, track the growth of their assets within the DAF, influence the DAF investment portfolio, name their DAF and network with other DAF account holders (DAF accounts can be called “foundations” without having to comply with more strict regulations that apply to formal foundations).
  • If a charity is unable to accept gifts of real estate, stocks, crypto, mutual funds, etc., a donor may be able to use a DAF to structure gifts in ways that benefit them. Some DAF sponsors can help donors liquidate assets and assist with complex asset donations. Commercial DAF sponsors may provide a one-stop shop for all of a donor’s financial planning needs (e.g., financial advising, portfolio management).
  • DAFs can be used to facilitate a charitable legacy, dovetailing conveniently with estate planning.
  • Donors can support international charities and NGOs and still be eligible to claim a federal tax deduction.
  • DAFs can reduce tax burdens after a windfall situation, such as receiving an inheritance, selling a business or experiencing strong market returns. You can take an immediate tax deduction when you make a charitable contribution to your DAF, reducing your tax liability. DAFs allow you to recommend grants to your favorite charities over time, so you can effectively pre-fund years of giving with assets from a single high-income event.
  • The main benefit of a DAF is the ability to make a donation and take an immediate tax deduction for it while waiting to decide how the donation should actually be used. While the donation is irrevocable, it can grow tax-free in the DAF via investment while the decision is being contemplated.

How It Works

  • The sponsoring organization establishes a donor advised fund in the donor’s name, and the donor can make additional contributions at any time.
  • Donors can contribute up to 60% of their adjusted gross income (AGI) in cash to a DAF or 30% of their AGI in appreciated assets.
  • The donor can recommend money be contributed to IRS-qualified public charities they support.
  • Many DAF sponsors require minimum contributions between $5,000-$25,000, but two of the largest DAF sponsors—Fidelity Charitable and Schwab Charitable (aka DAFgiving360—have $0 minimums.
  • DAFs do not have a payout requirement by law, but most DAF sponsors enforce minimum account activity policies.

The Nonprofit’s Role

It is in every nonprofit organization’s best interest to establish a relationship with a DAF sponsor and communicate the benefits of DAFs to their supporters.

According to The 2024 DAF Report by National Philanthropic Trust, DAFs represent 11% of all giving in the US, and the average payout for DAFs is about 24%—compared with foundations’ average payout of slightly above five percent. The DAF grantmaking payout rate, which is a function of grants made relative to the charitable assets available, has been at or above 20% for every year on record.

While donors technically only “recommend” grants, sponsoring organizations very rarely go against a donor’s wishes.

Some contributions to DAFs might have otherwise gone to private foundations, which have different legal rules, structure and operations. One difference is that the average payout rate for DAFs is considerably greater than the required (and average) payout rate for private foundations. Thus, for contributions that would have otherwise gone to private foundations, DAFs may lead to an acceleration, rather than a deferral, of payout. Moreover, while foundations often make restricted grants, most grants from DAFs are unrestricted—something highly valued by most organizations.

DAFs may provide a smoothing function for operating charities, increasing gifts during economic downturns. The reason for this is that while donors may be reluctant to commit new funds to charity when the economy is poor, they have already committed their DAF funds to charity. Consequently, they will have no incentive to reduce recommended payouts from the DAFs when the economy is poor, and some might recommend an increase in payouts in hard times.

Charitable assets may grow over time, making more charitable dollars available to nonprofits. Also, the charity will not be taxed on any growth, since the assets belong to the DAF’s charitable sponsor.

More Findings From the National Philanthropic Trust’s 2024 DAF Report

  • The average age for opening a DAF is 55 (an average that continues to skew younger); these individuals are likely contemplating their philanthropic legacies.
  • Total charitable assets increased almost 10%to $251.52 billion as the stock market rebounded in 2023 after posting losses in 2022.
  • Contributions to DAFs dropped significantly to $59.43 billion in 2023, a 21.7% decline. It is the most precipitous one-year drop on record and comes two years after the sharpest one-year increase (from 2020 to 2021). Contributions seem to be returning to historical growth patterns.
  • Grants from DAFs declined slightly, from $55.53 billion in 2022 to $54.77 billion in 2023. This one-year drop marks only the second decline in grantmaking since we began recording data in 2007.
  • The average DAF account size was $141,120 in 2023, a 9.2% increase compared to $129,206 in 2022. A significant portion of DAF accounts are much smaller, with nearly half having less than $50,000 in assets.
  • Almost all DAF accounts (92%) have a succession plan that specifies the disposition of remaining funds after the original donor advisor passes away.

Helpful Tools:

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  • Listen the Sharpe Insights: Conversations With Your Planned Giving Experts podcast episode on DAFs.

*As of 2024, per the Annual DAF Report 2025.