Surely you’ve heard the buzz – donor-advised funds are taking off in the nonprofit world. But if you aren’t exactly sure what that means for your organization, you’re not alone. Read on to learn all about DAFs and what they mean for your organization.
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Donor-advised funds (DAFs) are becoming a more and more popular giving avenue, especially for major donors.
According to M+R Benchmarks, revenue from DAFs increased by 44% overall in 2025.
DAFs give donors more control over their gifts and more flexibility in how to spend them, and nonprofits can also use DAFs as an indicator of major donor prospects.
In this article, I’ll share more about DAFs, how you can start one, the benefits of DAFs to donors and nonprofits, and how they differ from private foundations.
A donor-advised fund is a charitable giving account managed by a sponsoring 501(c)(3) organization.
They’ve been around since the 1930s, but were not officially part of the Internal Revenue Service (IRS) code until 2006 when George W. Bush signed the Pension Protection Act. This law allowed donors to give more to charity and save more on taxes.
With donor-advised funds, donors immediately receive a tax deduction when contributing and can suggest who will receive the gift and when. If the donor doesn’t want to take an active role after that, they can step away and let the DAF sponsor take control.
Donor-advised funds start when an individual, family, group, or company invests a qualifying amount (which differs widely) with a 501(c)(3) sponsoring organization.
Once the individual gives to the DAF, the organization has legal control over the funds, but the donor can advise the organization on where to send charitable gifts. Some sponsoring organizations have acted questionably in the past, so the IRS has added new procedures and guidelines to ensure organizations use funds correctly.
Donors interested in starting a DAF can contact companies like Fidelity Investments or Charles Schwab, and work with a community foundation, or alumni association.
Since DAF sponsoring organizations are 501c3 organizations, donors receive a tax deduction once they contribute to a donor-advised fund, even before funds reach the charity. Many nonprofits are concerned about this donor benefit because funds do not go to the organizations immediately.
DAF sponsoring organizations may have legal control, but donors can still advise how to use their gifts. Donors can tell DAFs to contribute to their favorite charities and give anonymously. Donors can also name family members or friends as advisors and create a legacy plan to ensure the gift continues after their death.
In the below example, the Center for Clean Air Policy has provided a way for donors to direct their DAF funds to their charity. This is a great way to let donors know that a nonprofit is open to accepting DAF funds; actually, a good way to even educate them on this new way of giving.
Donors can also invest in DAF assets to ensure long-term growth. Many sponsoring organizations provide donors with a list of investment recommendations. All income from DAF investments is tax-free.
Donor-advised funds have become popular because of the flexibility they offer to donors. With DAFs, donors can send gifts immediately to their favorite charities or hold funds for the future. DAFs also allow donors to split gifts among several organizations without the responsibility of starting their own foundation.
Other donor DAF benefits include:
Donors are not the only ones who benefit from donor-advised funds. Since Donors can invest DAF funds and receive tax-free earnings, nonprofits may continue to receive funds if the DAF investment is successful. Because of the tax benefit feature, many major donors show greater interest in opening a DAF account. However, nonprofits should educate and convince donors on how their DAFs can have an immediate impact in order to receive the funds immediately.
If your nonprofit hopes to encourage more DAF gifts, you must include a page on your website explaining how you can work together. Or use a donation form that asks donors if they have a DAF fund. It’s naturally a better way to grab the eye than mention it in one of the sentences of a big campaign description.
See how GREY2K USA Education Fund does it on their customizable Donorbox-powered donation page.
Donor-advised funds are not always the best choice for donors and nonprofits. A few restrictions may convince donors to look for other options and nonprofits to not consider this donation option at all.
DAFs cannot:
DAFs also include fees that may mean a donor’s gift is less than they would make with a one-time donation.
On the nonprofit side, since DAFs do not have an annual payout requirement (unlike private foundations), funds often get delayed. For a number of reasons, donors postpone the funds. Either they’re not able to decide on a cause or a charity or aren’t sure about donating to the nonprofit. A lot of DAF funds are often left unspent. Hence, many charities aren’t keen on going the DAF way when it comes to accepting donations. They prefer private foundations and other charitable giving to donor-advised funds.
Major donors looking for ways to contribute significant amounts to more than one organization must choose between donating to DAF or starting a private foundation. Since donors do not have to manage DAFs, this may seem an obvious choice, but they must consider several differences between the two before making a decision.
Here’s a table comparing DAFs and private foundations in more detail. As you can see, choosing between the two greatly depends on why you’ve decided to give.
| Private Foundation | Donor-Advised Funds | |
|---|---|---|
| How to start? | Register a 501c3 organization with the IRS and state. | File a fund agreement form with the sponsoring organization. |
| Cost to start? | Can take hundreds or even thousands of dollars in legal, IRS, and state filing fees. | No setup costs. |
| Time to set up? | Can take months. | Can be set up in one day. |
| Additional fees? | Yes. Potential additional legal, accounting, admin, and compliance costs may apply. | Yes. Sponsoring organizations usually charge admin and/or investment fees. |
| Who controls donations, investments, and contributions to charities? | Foundation staff and board members. | Sponsoring organization. Donors can advise where to contribute gifts. |
| Are gifts tax deductible? | Cash gifts are deductible up to 30% of the AGI, Stocks, and real-estate gifts are tax deductible up to 20% of AGI. | Cash gifts are deductible up to 60% of AGI, Stocks, and property gifts are deductible up to 30% of AGI. |
| Are investments taxed? | Generally subject to a 1.39% federal excise tax on net investment income. | There is no excise tax on net investment income. |
| Contributions per year? | Must use or distribute at least 5% of the previous year's investment assets. | No required annual distributions. |
| Form 990 requirements? | Must share all grants and board members on Form 990. | No. |
| How long can they exist? | Can exist for generations if properly maintained, and successors can also be named. | Depends on the sponsors rules. Many allow successor advisors or named charitable beneficiaries. Some transfer remaining assets to the sponsor after the advisory period ends. |
Donor-advised funds are a flexible option that allows donors to choose where, when, and how to use their funds.
By making DAF giving easy to understand and act on, your nonprofit is one step closer to helping donors move already-committed charitable funds toward your important cause.
Pair those efforts with Donorbox’s powerful giving tools – from donation forms and pages to donor management, recurring giving, event ticketing, and more – to grow your organization in the long run.
Kristine Ensor is a freelance writer with over a decade of experience working with local and international nonprofits. As a nonprofit professional she has specialized in fundraising, marketing, event planning, volunteer management, and board development.
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