You may have heard how DAFs are a smart choice for active donors. You may not have heard how easy it can be to set one up for yourself!
Donor Advised Funds are the fastest growing vehicle in philanthropy for a reason - they provide many benefits for donors and are becoming more accessible than ever. In this article we will cover:
Background on DAFs
Benefits of Donor Advised Funds for donors
How to most easily set up a DAF for yourself
How to get the most out of your DAF
Background on DAFs
A Donor Advised Fund, or “DAF” as they are commonly called, is a tax-advantaged charitable giving account. DAFs are often compared to a 401(k) for retirement savings or a Health Savings Account (HSA) for healthcare expenses.
Any person, couple, family – or even company – can open a DAF account at one of more than 1,100 providers around the country. DAFs have surged in popularity in recent years because they are incredibly effective at increasing giving capacity and streamlining philanthropy.
The power of DAFs lies in their simplicity:
Here are a few important rules about using DAFs:
Once contributed, you can’t take money out of a DAF for anything.
Funds can only leave your DAF as a grant to an eligible nonprofit.
You’re technically “recommending” a grant out of your DAF account because the DAF Sponsor needs to approve each request.
The DAF Sponsor reserves the right to decline any request based on their own diligence, but typically requests are approved that are for a 501(c)3 nonprofit that is in good standing with the IRS.
Some DAFs do have more stringent restrictions / limitations (i.e. religiously affiliated DAFs), so check and make sure you’re aligned with their limitations.
You can’t receive any personal benefit for making a DAF grant.
That’s why you can’t use a DAF to “buy” things like event tickets, gala tables, auction items, non-tax deductible memberships, etc.
Making donations out of your DAF is not a tax deductible event.
Remember, you already got your tax deduction from your contribution into your DAF, so you don’t get any more tax benefit when grants go out the DAF.
You should name a beneficiary to your DAF.
If you were to pass away, you can name an individual as a successor advisor to your account or specific nonprofits to receive a distribution of your account balance.
Otherwise the balance in your account is assumed by the DAF Provider itself for their general granting fund.
Benefits of Donor Advised Funds
Increased Giving Capacity
The 2024 DAF Fundraising Report revealed that once a donor switches to supporting an organization from their DAF instead of a credit card, their average annual support increased by 96%, as covered by Barrons. Why?
Figure from the 2024 DAF Fundraising Report
There are 3 ways in which DAFs help donors give even more:
Tax savings
When you contribute to a DAF, you can deduct the full contribution from your taxable income in that year. Given how high the minimum standard deduction is (as described in this Forbes article), many folks make larger one-time contributions to their DAFs that’s above the minimum standard deduction and grant out to nonprofits in subsequent years. This practice is commonly referred to as “bunching.”
If you contribute non-cash assets to your DAF, like stock shares or mutual funds, that have appreciated in value, you also avoid any capital gains tax that you would’ve owed if you had sold them in the open market. Many folks get highly strategic with this practice, reviewing their portfolio each year and contributing their best performing securities to their DAF to maximize their tax benefit. That’s why at DAF Providers like Fidelity, we see that 63% of contributions are in the form of non-cash assets.
Once cash or assets are contributed to your DAF, they can be invested and also grow tax free!
Investment Growth
With a DAF account, you’re proactively setting aside funds for your philanthropy that are automatically invested in the market. That way your committed charitable dollars are growing in the background, making you more generous whenever you want to give.
Accountability
The most powerful part of a DAF is the accountability it provides for your giving goals. When you proactively set aside a budget for giving at the start of the year, or automatically contribute a certain amount to your DAF periodically, you’re no longer making several micro decisions and gifts to hit your budgeting goal over the course of the year. You’ve taken the budget consideration out of the equation whenever you’re considering a donation. Instead, you’re just making an allocation decision.
DAF donors often compare the sensation to giving yourself a gift card, that makes you more primed to make donations, and also think more deeply about the causes you want to support and be more intentional with your giving.
When you contribute to a DAF, you can deduct the full contribution from your taxable income in that year.
Streamlined Philanthropy
Most folks are familiar with the experience at the end of the year trying to remember all the donations you made over the year. You might look through credit card statements, emails, etc. trying to track everything down - and also realize which organizations you haven’t given to that year.
With a DAF, everything is in one place that you can easily check any time. It makes it easy to track and review giving, plus most DAF providers have options to re-grant or set your grant requests to automatically happen on a recurring basis.
Easier to Use
While DAFs used to require a phone call - or maybe even a fax - to make a grant request from your account, the technology underlying DAF providers has come a long way! Every DAF now has an online login portal for account holders and several even have mobile apps to manage your account through.
How to set up a DAF for yourself
While DAFs historically were thought of as a tool for the ultra-wealthy, that is no longer the case. Millions of people are using DAFs to be tax-smart with their giving or just streamline their own philanthropy. DAFs used to have 5-figure minimum account sizes, that made them inaccessible to the vast majority of donors.
Now, many providers have drastically lowered their fees, account minimums requirements and minimum grant sizes. There are a few DAF options with no minimum requirements that are great options for anyone who wants to easily test out a DAF!
Fidelity and Schwab: The two largest DAF providers, Fidelity Charitable and Schwab Charitable, offer DAFs with no minimum account balances and a minimum gift size of $50. While the setup process may involve manual paperwork, these platforms provide accessibility and flexibility for donors - especially if you already manage your personal finances with these companies.
Daffy: With easy onboarding and a mobile app interface, Daffy appeals to donors seeking simplicity and convenience. There are minimal monthly fees for contributions exceeding $100, its low entry barrier makes it an attractive option for those starting their philanthropic journey. Their minimum donation size is $18.
Charityvest: Charityvest offers a user-friendly platform with a minimum gift size of $20. While accounts are initially free, they do have small administrative fees once you’re investing those dollars.
DonorsFund: DonorsFund offers no minimum deposit and no annual fees with a modern technology platform. They also offer a giving card and prefilled certificates to make your DAF giving as easy and social as possible.
Many donors also opt to hold their DAF with an entity that serves a local community (like Dallas Jewish Community Foundation or Brooklyn Org) or is aligned with their religious beliefs (like National Christian Foundation, OJC Fund or the American Muslim Community Foundation).
These are just a few of the more than 1,100 DAFs available. If you’d like to explore more options, check out donoradvisedfunds.com for even more comparison and analysis.
How to Maximize your DAF
This section was recently featured in an article on Giving Compass
A major reason for the recent focus on DAFs is the increasingly easy, social, and connected ways that a DAF can be used online. Historically, when DAF users were inspired to give in a more spontaneous fashion (a friend’s marathon fundraiser, a cousin’s birthday campaign, etc.), they opted to use their credit card instead of their DAF. In fact, the recent Donor Satisfaction Report from Giving Compass and The Lilly School of Philanthropy found that 37% of DAF donors surveyed did not use their DAF for their most recent donation, citing the extra steps required.
That’s all rapidly changing with 5 exciting new initiatives, features, and industry collaboration:
DAF Day on 10/10 - the first ever global giving day dedicated to Donor-Advised Funds
One of the biggest challenges that DAFs face is that they are not very well known or understood. Only 17% of Americans know what a DAF is (according to a recent poll), 42% of nonprofits don’t mention DAFs in any of their communications (according to a recent survey), and 37% of people with DAFs don’t use them in a given year (according to recent research).
In 2024, a group of leading nonprofits, DAFs, and fundraising technology providers got together and created DAF Day on October 10 to help address the DAF awareness problem. The movement now has over 1,000 nonprofits participating, reaching millions of donors to educate them about DAFs and encourage them to join this collective moment to demonstrate unprecedented generosity with Donor-Advised Funds.
In 2024, a group of leading nonprofits, DAFs, and fundraising technology providers got together and created DAF Day on October 10 to help address the DAF awareness problem
This initiative is making waves in the sector, with coverage in Axios, Forbes, and The Chronicle of Philanthropy. Anyone with a DAF is invited to join the giving celebration. You can learn more, sign up, and find participating organizations to support with your DAF at www.dafday.com.
Higher impact DAF giving in moments of crisis
With devastating weather events up-ending communities around the US recently, DAFs have become a critical way in which dedicated philanthropic dollars can be deployed to support those most in need. Platforms that facilitate crisis response giving, like GoFundMe, have even added a DAF payment option called “DAFpay” that lets DAF donors give with their DAF in three clicks right in their forms. Their gift appears on the campaign page in real-time, and the benefitting organization can incorporate those dollars into their crisis response immediately. When these gifts are made from a DAF portal instead, it can take days or weeks for the recipient to know anything about it.
You can learn more about GoFundMe.org’s crisis response work and how DAFs support it here.
DAF donor participation in peer-to-peer fundraising (rides, walks, etc.)
The most common reason people give is because they are asked—and the most common reason people ask is because they are participating in a fundraising event themselves. Between bike rides, walks, and even mustache-growing challenges, billions of dollars are raised for charity each year through this phenomenon, which is commonly referred to as “peer-to-peer” fundraising.
Peer-to-peer fundraising is so engaging because it’s social, it’s time-bound and it’s personal. Unfortunately, DAF donors have often been left out of that experience because it’s so time-consuming to make sure a DAF grant ultimately gets attributed to a specific person’s campaign. However, many of the country’s largest events, like Alzheimer’s Association’s Walk to End Alzheimers, The Pan-Mass Challenge, Susan G Komen’s 3-Day, and March of Dimes March for Babies now have DAFpay as a core integrated payment option that gives a DAF donor the same level of engagement as someone using a credit card.
In fact, one donor and 37-year veteran of the Pan-Mass Challenge was so excited about using DAFpay to give to the ride this year that he wrote an article in Forbes about how it’s even easier than a credit card.
Real-time DAF gifts for Giving Day campaigns
It’s not just DAF Day that encourages DAF giving on a particular day. Organizations around the country are making it easier and more engaging for donors to give from their DAF and show up in the real-time tracker for time-bound campaigns. From schools to athletic clubs, thousands of organizations are combining the potential of DAF giving with the competitive spirit and camaraderie of these events. Community Rowing Inc. in Boston is now getting more than 30% of their giving day fundraising on Givebutter through digital DAF gifts, driving 100% of their year-over-year growth.
Take advantage of the record high stock market!
There’s no better time to contribute non-cash assets to your DAF, like stock and mutual fund holdings, than when the market is at record highs. You can capture three layers of tax benefits - deducting the total face value of the securities from your taxable income this year, avoiding any capital gains tax that would’ve been owed if the securities had been sold outright, and the money in your DAF account will continue to grow tax-free!
This is the perfect time to review the biggest winners in your portfolio, discuss with your financial advisor, and contribute to your DAF before year-end. Explore ways to contribute to your DAF in this helpful overview from Fidelity.
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