4 common questions about donor advised funds

Have you heard of donor advised funds but aren’t sure how they work? In this post, we’ll answer the top 4 questions we receive about donor advised funds to help you understand how this charitable giving strategy might work for you.

What is a donor advised fund?

Simply put, a donor advised fund (DAF) is a charitable account administered by a nonprofit institution. The nonprofit administering the DAF is often called a sponsor.

For example, Fidelity has created a charitable arm called Fidelity Charitable that sponsors DAFs, and they are an increasingly significant mechanism for making charitable gifts. In fact, according to Fidelity’s 2021 Giving Report, donor advised grants from Fidelity alone totaled over $9 billion in 2020. And Fidelity is just one of many DAF sponsors throughout the country.

How does a DAF work?

Because the sponsor is a 501(c)(3) nonprofit, gifts made to DAFs can provide a charitable income tax deduction for the donor. The sponsor will invest that gift and keep it segregated in a DAF associated with the donor (e.g., “The Bradley Family Fund”). When the donor wishes to distribute money from her DAF to a charity that will put the gift to use – like Duke – then the donor requests that a gift be distributed from her DAF to her chosen charity. That distribution is often referred to as a “grant” rather than a “gift” because it is a transfer from one charitable organization (the DAF sponsor) to another (the end-use charity). Donors are not required to grant their funds within a specific timeframe, but according to Fidelity’s 2021 Giving Report, 75% of donor contribution dollars were granted to other organizations within 5 years of receipt.

The donor can only request that a grant be made to the charity of her choice because the sponsor owns the DAF and has complete control over it, which is why the donor receives an income tax deduction for making a gift to her DAF. But most sponsors will happily comply with grant requests unless they have reason to suspect that the end-use charity is untrustworthy in some way. Each sponsor of a DAF program will have rules regarding minimum fund size, grant size, fees, investment options, and other guidelines that you should consider before establishing your DAF.

Why would someone use a DAF instead of making a gift directly to a charity?

DAFs have grown rapidly in recent years because taxpayers appreciate the ability to set aside charitable dollars and receive an income tax deduction while retaining flexibility to decide which charities they want to support at a later time. Donors also appreciate that a DAF can centralize their philanthropy, providing a record of charities they have supported over the years and minimizing tax receipts. Some sponsors also offer assistance in complex giving strategies – like gifts of privately held business interests or cryptocurrency – that a charity may not be able to accept directly.

How do DAFs work at Duke?

Duke receives many DAF grants each year. They can be used to pay pledges, establish endowment funds and make gifts that receive matching funds if available. If a donor wants to make a multi-year commitment that will be met through DAF grants, we refer to this as a “non-binding intention” rather than a “pledge.”

It is important to note that DAF grants cannot be used if the donor will receive something of value in return – such as the ability to purchase basketball tickets in Cameron Indoor Stadium through support of the Iron Dukes.


If you are interested in learning more about donor advised funds or would like to discuss a DAF grant to Duke, please contact us. Thank you for all the ways that you support Duke!

TAGS: donor advised funds Charitable Giving Strategies

About the author

Anne Bradley

anne.bradley@duke.edu

Anne helps donors and their professional advisors understand and consider charitable gifts that require some measure of tax, legal or financial planning. Anne’s work includes charitable gift and tax issues related to estates, trusts, life income gifts such as charitable gift annuities and charitable remainder trusts, real estate and other complex gift arrangements. Prior to joining Duke, Anne managed corporate, foundation, and government fundraising for the Detroit Zoological Society. When she’s not at work, Anne roams like Roosevelt visiting our nation’s National Parks.