Donor Advised Funds: Transforming Philanthropy Today and Tomorrow

DAF Day was celebrated earlier this month on October 9th. It’s a national day of giving centered around donor advised funds (DAFs), spotlighting the power that DAFs have to transform lives. DAFs have become one of the most popular giving vehicles in the U.S.—and for good reason. They’re flexible, easy to set up and offer powerful tax benefits, making them a great giving tool for everyone.

A Brief History of Donor Advised Funds

The first donor advised fund was created by the New York Community Trust in 1931, allowing donors to contribute to a fund, receive an immediate tax deduction, and advise on how the funds were distributed over time. This was an innovative approach to philanthropy. These early DAFs were housed in community foundations, which managed charitable funds for local causes.

The Tax Reform Act of 1969 introduced new regulations for private foundations, leading donors to seek more flexible and less regulated alternatives. DAFs started gaining more attention as an option that required less overhead and less scrutiny than private foundations. By the 1990s, financial firms began offering DAFs through charities created to receive donations, making them more accessible to individuals of all wealth levels. The rise of financial advisory platforms further accelerated their popularity.

Today, DAF holders are the fastest-growing group in philanthropy, with over $250 billion currently set aside in DAFs.

How DAFs Work

A DAF works like a charitable savings account. It allows individuals, families or organizations to make a charitable contribution, receive an immediate income tax deduction, and then recommend grants from the fund to IRS qualified charities over time.

Donors are eligible for an immediate tax deduction when funding a DAF, even if the funds are not distributed to charities until a later date. Currently there is no time limit in which to make grants. Contributions to a DAF are considered charitable donations in the year they are made.

Examples of assets that can be contributed to a DAF include cash, financial assets, crypto, private equity, real estate and more. These assets are typically liquidated and reinvested, allowing them the potential to grow tax-free within the DAF. Capital gains tax is avoided, and the donor’s taxable estate may be reduced.

DAFs also create the opportunity for donors to create a lasting impact with their legacy. This can be done in a couple of ways:

• Charity(ies) can be designated as beneficiaries of the account after the donor’s lifetime to ensure their impact continues. Charities can receive all or a percentage of the remaining balance.
• Philanthropy can continue through the donor advised fund by naming successors- often family members or advisors.

Benefits for Donors and Advisors

Advisors often favor DAFs because they centralize charitable giving, making recordkeeping easier. The DAF provider also manages all IRS documentation and vetting of nonprofits once the donor requests a grant be considered.

Many donors find that the ability to make anonymous donations important. This avoids public association with a specific cause and keeps giving confidential.

Limitations to Consider

While DAFs offer many advantages, there are potential limitations for your clients to understand when considering this powerful giving option.

• Once the contribution to a DAF is made, the donor cannot terminate the DAF or withdraw any funds.
• Administrative and investment fees apply, though they are usually lower than private foundations.
• Legal restrictions also apply. Donors can recommend grants to their favorite charities, but the DAF sponsor is the owner of the fund and has final legal control.
• Donors cannot receive personal benefits from grants, such as meals, a table at a gala, or any services.
• Grants must go to an IRS-qualified 501(c)(3) charity in good standing.

Upcoming Tax Law Changes Affecting Charitable Giving

Tax changes are coming in 2026 that may affect donors who give through DAFs. The good news is that there’s still time to plan ahead and maximize the benefits. Here are a few key things to know:

• Taxpayers who itemize will only be able to deduct charitable gifts that exceed 0.5% of their income. This makes “bundling” or frontloading several years of giving into a DAF a smart strategy.
• Corporations will only be able to deduct charitable gifts that exceed 1% of taxable income. Companies may want to take advantage of today’s more generous limits by contributing to a DAF before the changes take effect.
• For donors in the 37% tax bracket, charitable deductions will be capped at 35%. Making larger DAF contributions this year can help maximize tax savings.
• For donors who don’t itemize but want to take advantage of the Universal $1,000/$2,000 Charitable Deduction, contributions into a DAF do not count.

If you have clients who are considering adding to their donor advised fund, making contributions before the end of 2025 could give them the biggest possible tax benefit. A DAF remains one of the most flexible and effective ways to manage charitable giving—and thoughtful planning today can extend its impact well into the future.

Donor advised funds have transformed how individuals and families engage in philanthropy—combining tax efficiency, flexibility, and donor control. Yet 37% of DAF accounts go unused in a given year, representing untapped potential for both clients and the causes they care about.

As a trusted advisor, you can help clients unlock the full power of their giving. For those who already have a DAF, encourage them to put their charitable dollars to work now rather than later. For those who don’t, explore how establishing a DAF could simplify their long-term charitable strategy while maximizing tax benefits.

Your guidance can ensure clients’ generosity makes a greater impact today—and builds a lasting legacy for tomorrow.

About the Author

John W. Cullum, CFP®

John is based in Birmingham, Alabama and serves AL, FL, GA, LA, MS, NC, SC, TN, and PR.