What Is a Donor-Advised Fund — And Why Should You Care?

The Basics

A Donor-Advised Fund (DAF) is a charitable giving account that works like this:

1. A donor contributes cash, stock, real estate, or other assets to a sponsoring organization (typically a community foundation or a financial institution like Fidelity Charitable or Schwab Charitable)

2. The donor receives an immediate tax deduction for the full value of the contribution

3. The assets grow tax-free inside the account

4. The donor recommends grants to qualified charities over time — on their own schedule

The key insight: the donor gets the tax benefit now, but can distribute the funds over months or years.

This is enormously powerful. A donor who sells a business or receives a large bonus can make a single large contribution to their DAF in a high-income year, take the full deduction immediately, and then distribute grants to your organization over the next decade.

The Numbers Are Staggering

The growth of DAFs over the past decade has been extraordinary:

• ▪$251.5 billion in total DAF assets (2023)
• ▪1.78 million active accounts
• ▪$54.7 billion in grants distributed in 2023 alone
• ▪Average account size: $141,000
• ▪DAF giving has grown at 17% annually over the past five years

This is not a niche product for the ultra-wealthy. The average DAF account holder is a successful professional — a doctor, an attorney, a business owner — with a household income between $200,000 and $500,000.

Why Most Nonprofits Miss DAF Donors

The challenge with DAF giving is that it is invisible to most organizations.

When a donor gives through a DAF, the grant often arrives from the sponsoring organization (Fidelity Charitable, Schwab Charitable, etc.) rather than from the donor directly. Development teams frequently record these gifts without connecting them to the individual donor relationship.

More critically, most organizations have no proactive strategy for helping their existing donors establish DAFs. They wait for grants to arrive rather than educating donors about the vehicle.

What You Should Do

The organizations that are winning in the DAF era are doing three things:

First, they are educating their donors. They host workshops, send educational content, and have one-on-one conversations that explain how DAFs work and why they are advantageous.

Second, they are making it easy. They have clear instructions on their website for how to recommend a grant from a DAF, and they acknowledge DAF gifts promptly and personally.

Third, they are asking. Specifically, they are asking donors who they know have appreciated assets or high-income years to consider establishing a DAF and naming their organization as a primary beneficiary.

In the next post, we will explore the Charitable Remainder Trust — a more sophisticated vehicle that allows donors to give a large asset to charity while receiving a lifetime income stream in return.