Donor-Advised Funds: Opportunity or Challenge?

Donor-Advised Funds: Opportunity or Challenge?

By Cynthiana Sweeney, CD Funding Solutions

In today’s philanthropic landscape, few tools have sparked as much debate, or as much growth, as Donor-Advised Funds (DAFs). With more than $230 billion in assets held in DAFs and contributions growing each year, they’ve become a powerful force in charitable giving. But while they offer promise, they also raise pressing questions: Who benefits most from DAFs? How can nonprofits engage with DAF donors effectively? And what might we be leaving on the table by not asking harder questions?

What Exactly Is a Donor-Advised Fund?

At its core, a DAF is a charitable giving account hosted by a public charity (such as Fidelity Charitable, Schwab Charitable, or a local community foundation). Donors contribute cash, stocks, or other assets to the fund, receive an immediate tax deduction, and then recommend grants from the fund over time.

That’s where both the potential—and the challenge—lie.

Why DAFs Are Attractive to Donors

DAFs provide donors with simplicity, flexibility, and control. They can make a contribution during a high-income year, get the tax benefit immediately, and decide later where to direct the funds. DAFs can also be a useful tool for families developing a culture of giving, allowing them to be more intentional without needing to establish a private foundation.

The Nonprofit Perspective: Benefits with Caveats

For nonprofits, DAFs can be both a windfall and a mystery.

On one hand, gifts from DAFs often come from high-net-worth individuals and can be generous and recurring. These funds may also arrive quickly once a donor recommends a grant with no lengthy application cycles or reporting hoops.

But here’s the challenge: most DAF grants come without much context. You may receive a check with no donor name, no contact information, and no way to say thank you or build a relationship.

And in some cases, the money just… doesn’t come at all. According to the National Philanthropic Trust, the average DAF pays out just under 20% of its balance annually, meaning billions of dollars sit idle each year while nonprofits struggle to meet urgent needs.

What’s the Ethical Question?

Critics argue that DAFs provide a tax shelter for donors without requiring them to distribute funds within any set timeline. This disconnect between when the tax benefit is realized and when (or whether) charitable impact occurs has prompted calls for reform. Proposed legislation like the “Accelerating Charitable Efforts (ACE) Act” aims to establish payout requirements, but it’s met resistance from some corners of the philanthropic sector.

For funders committed to equity and urgency, this raises a real question: Are we optimizing generosity, or simply warehousing it?

So, What Can Nonprofits Do?

Nonprofits don’t need to wait for policy reform to start strengthening their relationship to DAFs. Here are a few strategic moves organizations can make:

• Start asking about DAFs during donor conversations. Many donors don’t realize they can make gifts this way, and you may be leaving options on the table.

• Add DAF language to your website. Make giving easy. Include clear instructions and the legal name, address, and EIN you want DAF gifts directed to.

• Partner with community foundations. These local intermediaries can be an important bridge to values-aligned DAF donors who care about your region or issue area.

• Use acknowledgment wisely. Even if you don’t know who the donor is, always thank the sponsoring organization (e.g., Fidelity Charitable) and invite the donor to self-identify if they feel comfortable.

• Advocate for stronger philanthropic transparency. Collaboration between funders and nonprofits can help build systems that protect donor intent and prioritize public good.

Final Thought

Donor-Advised Funds aren’t inherently good or bad, they’re a tool. And like any tool, the impact depends on how it’s used. As a sector, we need to get clearer about what equitable, timely, and transformational giving looks like. And DAFs must be part of that conversation.

Because while we’re grateful for every gift that makes its way to our programs, our communities can’t afford to wait for generosity that’s sitting on the sidelines.