What are donor-advised funds and how can I research them?
Giving money directly to a favorite charity isn't the only way U.S. taxpayers can receive an annual deduction for their donations. They can also set up an account called a donor-advised fund (DAF).
According to the IRS, a donor-advised fund is a special fund or account controlled by a section 501(c)(3) organization called a sponsoring organization. Many people set up DAFs through community foundations. Sponsoring organizations can also be public charities--such as some university alumni associations--and investment firms that manage charitable funds. Schwab and Fidelity are among the big financial services companies that manage huge sums of money in DAFs.
Briefly, an individual donor contributes a certain amount of assets -- it could be cash, stock shares or some other kind of wealth -- to a fund. Donors can deduct the full amount right away from that year's taxes. They can't get the funds back; all of it must eventually go to nonprofits, but there's no time limit. Meanwhile, the funds can be invested and continue to grow. Some donors want to pick which organizations receive grants from their DAFs. Other donors prefer to let the fund managers decide.
Increasingly, individual donors are choosing to contribute to donor-advised funds, because they can advise how funds are invested and distributed but avoid the administrative requirements and operating costs involved with running a private foundation. According to the National Philanthropic Trust, in 2018 DAFs held more than $121 billion and made $23.42 billion in grants to nonprofits, an increase in giving of 18.9 percent over the previous year.
Unlike private foundations, donor-advised funds do not have minimum payout requirements, but lawmakers are considering making similar payout rules for them.
Also, these funds can be relatively anonymous because, unlike foundations, they are not required to disclose as much information about their charitable giving. This means that finding detailed, public information about a donor-advised fund's grantmaking activities can be challenging for grantseekers and researchers.
The Council on Foundations' Community Foundation Locator can help you find community foundations in your area.
Foundation Directory, our searchable database of grantmakers, also can help you find sponsoring organizations. Try a Grantmaker Type search for "public charity." You can subscribe online, or use it for free at our Candid partner locations. Eligible nonprofits with revenue or expenses under $1M can also gain a free year of access to Foundation Directory Essential through our Go for the Gold! promotion.
Aside from community foundations most DAF managers don't offer any easy way for a nonprofit to introduce itself to a DAF or its customers. Some good ideas are to:
- Make it clear on your donations page that you accept donations from DAFs.
- Make it clear in your gift acknowledgement letters as well.
- Visit the DAF Direct site to learn more about the DAF direct widget.
Have a question about this topic? Ask us!
Candid's Online Librarian service will answer your questions within two business days.
Ask usExplore resources curated by our staff for this topic:
Staff-recommended websites
-
American Bar Association
Alternatives to Forming a Charitable Nonprofit
Article discusses using an existing nonprofit, fiscal sponsorship, and donor-advised fund as options to forming a separate charity. By Gene Takagi and Emily Chan of the Nonprofit Law Blog.
-
DAF Direct Widget
A widget that can be added free of charge to your nonprofit's website. The idea is to make it easier for any DAF researching your nonprofit to make a donation.
-
Internal Revenue Bulletin
Definition of a Donor-Advised Fund
The official IRS definition. Click on the 2006-109 link.
-
National Philanthropic Trust
Donor Advised Funds
The National Philanthropic Trust manages donor-advised funds, publishes an annual report on DAFs and shares a lot of info on this form of giving.
-
Nonprofit Quarterly
Donor-Advised Funds Growing Ever Faster: How Should Nonprofits Access the Wealth? - Non Profit News
There's no central place to learn about funding opportunities from DAFs or how to get to know fund managers. Here are some suggestions.
-
ThinkAdvisor
Donor-Advised Funds Were 2017's Philanthropy Star
Discusses the astonishing growth of donor-advised funds in the nonprofit world.
-
InfoRich Group
Five Simple Strategies to Increase Gifts from Donor-Advised Funds
Offers advice on how to cultivate donors who give through donor-advised funds.
-
Fidelity Charitable
Research Charities
Learn how a very large DAF manager, Fidelity Charitable, researches and recommends nonprofits to its customers.
-
IRS
Sponsoring Organizations of Donor Advised Funds
IRS updates on DAFs, mostly for DAF managers