Donor-Advised Funds

The Fastest-Growing Charitable Giving Vehicle — And What It Means for Your Organization

Donor-advised funds, or DAFs, have become one of the fastest-growing charitable giving vehicles that allow donors to make a contribution, receive an immediate charitable deduction, and then recommend grants to nonprofits over time.

They are especially attractive because donors can contribute cash, stock, and in some cases complex assets, then let those assets grow tax-free until they are granted out.

For nonprofits, DAFs matter because they represent a major and growing source of charitable support. They also create an important opportunity to build long-term donor relationships which could lead to a planned gift conversation – especially with people who are already planning their giving strategically.

How DAFs Work

A DAF usually follows three steps:

The donor contributes assets to the fund and receives a charitable deduction.

The assets may be invested inside the fund and grow tax-free.

The donor-advisor recommends grants to qualified 501(c)(3) nonprofits, and the DAF sponsor sends the payment.

In practice, the sponsor is the organization that legally holds the fund, such as Fidelity Charitable, Schwab Charitable, Vanguard Charitable, a community foundation, or another qualified sponsor. Once the sponsor approves the recommendation, the nonprofit receives the grant.

Important Terms to Know

Contribution:

The initial or follow-up gift into the DAF (cash, stock, complex assets).

Grant recommendation:

The donor-advisor’s request that money be sent to a nonprofit.

Payout rate:

The percentage of DAF assets that are distributed to charities.

Residuum:

The balance remaining in the DAF at the donor’s passing.

Successor advisor:

The person named to continue recommending grants after the original donor dies.

What DAF Grants Cannot Do

DAF grants are subject to IRS rules, especially the “more than incidental benefit” rule. That means the grant cannot give the donor a meaningful personal benefit in return.
DAF grants cannot be used to:
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    Pay for gala tickets, meals, or auction items.

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    Cover anything where the donor receives more than a minimal incidental benefit.

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    Pay legally binding pledges in a way that treats the DAF as responsible.

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    Fund donor-directed scholarships where the donor chooses the recipient.

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    Give to individuals.

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    Give to non-qualified entities such as lobbying-focused organizations or another DAF.

    A simple way to think about it is that DAF money must go to a nonprofit, not to something that benefits the donor personally.

    Why DAFs Matter for Fundraising

    The scale of DAF giving is significant. According to the DAF Research Collaborative, there are around 3.56 million DAF accounts with an estimated 35% of individual giving flowing through DAFs. This accounts for roughly $326 billion in DAF assets, with $65 billion granted to nonprofits, and a payout rate of 25.3%.
    This means nonprofits should treat DAFs as a normal part of fundraising, not a niche topic. DAF donors are often strategic planners, which make them strong planned giving prospects as well.

    Who Uses DAFs

    • Mass affluent planners, who use DAFs to bunch gifts, manage variable income, and spread giving over several years.
    • Community foundation donors, who want local expertise and a long-term partner in their philanthropy.
    • High-net-worth strategists, who use DAFs to give complex or illiquid assets such as closely held business interests or real estate.
    Many donors also use DAFs because their compensation is uneven. For example, people who receive commissions, bonuses, or year-end profit sharing may use a DAF to set aside charitable funds when income spikes and then distribute those funds throughout the following year.

      How Nonprofits Should Handle DAF Gifts

      DAF gifts should be recorded carefully in your CRM or donor database. The sponsor gets the hard credit, while the donor-advisor receives the soft credit. That distinction matters because the donor already received their charitable deduction when they funded the DAF.

       

      When acknowledging a DAF gift, keep the message personal and warm. Thank the donor for recommending a gift, but do not include tax receipt language that would normally appear in a standard acknowledgment to an individual donor.

      How to Find DAF Donors

      Nonprofits should make it easy for donors to give through a DAF. Clearly state on your website, donation page, and campaign materials that you accept DAF grants.

      A few practical steps can help:
      • Make sure your legal name, EIN, and mailing address are accurate and easy to find.
      • Register with tools or directories that help donors and advisors find your organization.
      • Build relationships with local community foundations and other DAF sponsors.
      • Add DAF language to your annual giving and planned giving materials.
      The key is consistency. DAF giving should be visible all year, not just during a special campaign or awareness day.

      Why DAF Donors Are Planned Giving Prospects

      DAF donors are often ideal planned giving prospects because they already think long-term and use intentional giving strategies. If someone has already set aside money for future charitable use, that usually signals a mindset that fits planned giving conversations.

      That opens the door to additional discussions about:
      • Discussing what should happen to the remaining balance after the donor’s lifetime.
      • Naming your organization as a DAF beneficiary.
      • Exploring other planned gifts, such as bequests or beneficiary designations.

      Practical Takeaway: The main message is simple: DAFs are an important, growing part of philanthropy, and nonprofits should be ready to receive and discuss them. Organizations that clearly invite DAF gifts, track them properly, and build donor relationships around them will be better positioned to benefit from this giving channel.

      Ready to Build a Planned Giving Program That Lasts?

      If you want to strengthen donor relationships, inspire lasting commitments, and grow a program rooted in trust, we’re here to help. Contact us today to schedule a demo.

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