Understanding Donor Advised Funds: Trends, Issues and Strategies
- Cindy Reynolds, CFRE
- 2 days ago
- 6 min read
Recently, there has been a resurgence of criticism over Donor Advised Funds (DAFs) and the lack of a distribution requirement for a charitable purpose. DAFs are not new, and neither is this notion that we must call for regulation to force distribution. But wait—not so fast!
Three 2024 research reports illuminate DAFs from a variety of perspectives: National Philanthropic Trust provides statistics on all DAFs accumulated from the sponsors’ 990s, the Donor Advised Fund Research Council surveyed the behavior and trends looking at individual accounts, while the inaugural DAF Fundraising Report evaluates the methods used by nonprofits to attract DAF donors. Each report is cited below where relevant data was used.
The National Philanthropic Trust (NPT) has issued its annual DAF Report for the past 17 years. The first report issued in 2007 was simply a two-page summary of 10 DAF sponsors, but clearly this is not a new approach to charitable giving. In fact, community foundations sponsored the first donor advised funds early in the last century.
The NPT 2024 DAF Report analyzed the 990s of 1,140 organizations that sponsor DAFs, examining 73 national charities, 723 community foundations and 344 single-issue charities. The cumulative balance of DAF accounts was over $250 billion in more than two million accounts.¹
With so much philanthropic funding invested in DAFs, is regulation of DAF distributions warranted?
If these funds had been held in private foundations, they would have had a mandatory minimum distribution of roughly 5% annually, or $12.5 billion. DAFs granted nearly five times that amount, or $59.4 billion. In fact, while private foundations held $1.5 trillion in assets (six times the amount in DAFs), they made grants of only $114 billion—less than twice the amount granted by DAFs. Private foundations largely distribute the minimum required, while DAF donors tend to make gifts regularly into their accounts and recommend grants to charities frequently. DAFs are emerging as a deliberate vehicle to hold oneself accountable for charitable intent, both regarding contributions into the DAF and the deployment of funds to achieve charitable intent. Mandating a minimum distribution rate might depress charitable granting!
DAFs are emerging as a deliberate vehicle to hold oneself accountable for charitable intent, both regarding contributions into the DAF and the deployment of funds to achieve charitable intent. Mandating a minimum distribution rate might depress charitable granting!
The Donor Advised Fund Research Collaborative (DAFRC) is a consortium of academic and nonprofit researchers that provides empirical data on the characteristics and behavior of individual DAF accounts. In a research initiative that included 111 DAF sponsors, DAFRC analyzed anonymized data from over 50,000 accounts, providing an unprecedented look into DAF activity and trends. Of the accounts included in the DAFRC survey, 51% had a balance over $50,000 and 7% had a balance over $1 million. Sixty-three accounts held over $100 million each.²
So, what can all this data really tell us about DAFs? Let’s break it down:
Easy to Establish and Manage
Improvements in online portals and low- or no-minimum account balances have made it increasingly easy for donors to create DAFs. For some donors, the increase in standard deduction may lead to “bunching” all charitable contributions to a DAF in one year for tax deductibility purposes and then distributing funds from the DAF over time.³
Flexibility and Intentionality
DAFs provide flexibility to accept and subsequently gift the value of complex gifts and illiquid assets including farms, vineyards and ranches, closely held business interests, cryptocurrency as well as other unusual assets including boats, airplanes and so on. Families often struggle with distribution of complex assets, and contributions into DAFs can provide a smoother pathway to an intergenerational philanthropy legacy. Ninety-seven percent of the accounts studied by the DAFRC survey have succession plans in place, demonstrating this family-centered principle.
Engaging DAF Donors
We have seen that the DAF industry is robust and learned about the behaviors and motivations that lead individuals to establish and fund their DAFs. Sensing a gap in knowledge about how nonprofits intentionally attract DAF donors, a new study was undertaken by 2KD and Chariot: the 2024 DAF Fundraising Report. The inaugural DAF 2024 Fundraising Report helps nonprofits identify successful strategies to pursue this crucial sector of donors.
DAF Donors as Intentional Givers
DAF donors are intentional givers—they’ve already set aside funds specifically to achieve their charitable priorities. However, while the DAF provides a funding vehicle, it is an intermediary in terms of philanthropic impact. Think of a DAF like an investment account: the donor’s generosity is already committed, but the impact has not yet been achieved.
According to the 2024 DAF Fundraising Report from K2D Strategies and Chariot, the news for nonprofits is positive. When existing donors began giving through their DAFs, their annual giving increased an average of 96%. Overall, median DAF giving rose 214%, while non-DAF giving was stagnant (+1%).⁴
Twenty-six percent of DAF donors were already giving to the charity prior to making their first DAF gift, but 74% were new donors. This highlights the importance of actively soliciting DAF gifts from existing donors in addition to opening a pathway for potential donors. Concerned about shrinking donor retention rates? Sixty percent of DAF donors were retained year over year compared to 45% of non-DAF donors, and these repeat donors gave 19x larger gifts than non-DAF donors.⁵
So, DAF donors make larger gifts, are retained at higher rates and are growing in numbers daily. How will your strategy evolve to meet them?
Soliciting and Stewarding DAF Donors
DAF giving is a strategy that belongs in both mass appeals and relationship-based donor development. For digital appeals, link directly to a giving page that accepts DAF gifts. In direct mail, include both the link and a QR code. Be mindful that some donors prefer typing in a URL rather than scanning a QR code, especially with rising awareness of “quishing” (QR code phishing), which the FBI notes is most concerning in public settings.⁶
If you know your major donor has a DAF, learn why they created it and what impact they want to make. If you’re unsure, ask directly if they have a DAF and encourage them to consider using it to support your organization—as long as no benefits or quid pro quo are involved.
Campaigns offer many opportunities to increase your donor base through DAFs. Highlight DAF donor stories, include DAF payment links in campaign communications and educate donors on how DAFs can be used to fund payments during multi-year commitments. Typically, in a multi-year campaign, we see the donor commit to a pledge personally and then select the giving vehicle on an annual basis. If a DAF grant is received from a donor with an active pledge, confirm whether they want it applied to their commitment. Remember that hard credit goes to the institutional sponsor that sent the funds, while soft credit can be used to reduce the donor’s pledge balance.
Exceptions to Soliciting DAF Gifts
Most of the tax and timing advantages that are available to any charitable donor are easy to access with a DAF gift. However, contributions to DAFs cannot yield a personal benefit as is seen with tickets, meals, tables at galas, golf and more. While it is incumbent upon the sponsor to verify that the grant is appropriate before approving, no charity wants the embarrassment of soliciting DAF gifts for an unallowable purpose.
There is at least one tax advantage that direct charitable gifts have over contributions to DAFs: gifts to DAFs cannot be used as a Qualified Charitable Distribution (QCD). A donor may indeed make a gift from an IRA to a DAF, but DAFs are not considered qualified charities for the purpose of a QCD (tax-free retirement distribution). This means the donor would have to take the Required Minimum Distribution into income, then make a tax-deductible contribution to the DAF.
Bringing It All Together
While it is easy to get excited and plunge into DAF solicitations, your operations team must be ready to provide excellent and appropriate stewardship. Even with the best intentions, mistakes can be made.
Your operations team plays a critical role in preparing for DAF giving. They can vet DAF payment platforms, set up ACH protocols, investigate online giving widgets and establish procedures for handling DAF gifts that arrive by mail with limited donor information. Be sure to copy all materials—check, envelope, transmittal letter—and forward them to gift processing. Clues to donor identity are often there. Remember: fewer than 4% of DAF grants are intentionally anonymous, so it is worth the effort to identify the account owner for acknowledgement.⁷
Proper receipting goes to the DAF sponsor organization, not the donor. However, a heartfelt thank you letter will not accomplish its purpose if it is sent to the sponsor organization, especially the large national sponsors. Instead, communicate impact directly to the donor. If appropriate, copy a local or employer-based sponsor, but focus your stewardship on the individual.
DAF donors have made an intentional decision to be philanthropic. Meet that generosity with the same level of timely, impact-oriented communication—and you will lay the foundation for lasting donor loyalty.
About the Author: Cindy Reynolds, FAHP, CFRE is a Principal Consultant with Accordant. She specializes in strategic planning, board engagement and philanthropy operations. She can be reached at Cindy@AccordantHealth.com or through LinkedIn.
