Five Core Truths About Donor-Advised Funds Advisors Should Know

DAFs solve timing and coordination problems that direct giving often can’t. Many donors know they want to make a charitable gift before year-end, but they may not yet know exactly how to allocate those charitable dollars. For example, a donor might want to contribute 100 shares of Apple stock before Dec. 31, while still needing time to decide which charities should receive grants and in what amounts. A DAF separates those two decisions. The donor can complete the charitable contribution when the tax and planning timing matters, then recommend grants later with greater thoughtfulness and clarity.

That same advantage of DAFs becomes even more important in situations involving complex assets. Charitable planning often has the greatest impact before the sale of a closely held business, real estate or another appreciated non-cash asset. But that’s also when the donor is usually negotiating with a buyer, coordinating with attorneys and tax advisors and working under tight transaction deadlines. In theory, the donor could give fractional interests in the asset to several charities before the sale. In practice, that can be difficult. A buyer may be comfortable with one sophisticated charitable recipient, such as a national DAF sponsor or an experienced community foundation, participating in the transaction process. However, the buyer is much less likely to welcome multiple operating charities, each conducting its own due diligence and navigating its own gift acceptance procedures. Under these circumstances, the DAF can serve as a charitable aggregator. It allows the donor to contribute the asset before the sale and then recommend grants to multiple organizations after the transaction has closed, once the donor has had time to focus on impact.

DAFs distribute a much larger percentage of assets each year than many people realize. A common refrain I’ve heard is that DAFs warehouse charitable dollars. There are legitimate policy debates about DAFs, including payout, transparency, donor control and inactive accounts. But on the central question of how much comes out of DAFs each year, the aggregate data tells a more nuanced story. As discussed above, during 2024, DAFs had an overall payout rate of 25.2% of assets per year. By comparison, the 2024 payout rate for private foundations was 8.1%. In other words, on a percentage-of-assets basis, DAFs distributed more than three times as much as PFs. This comparison matters because public perception often assumes the opposite: that PFs are the active grantmaking vehicles and DAFs are the passive ones. The percentage payout data complicates that assumption. This doesn’t mean every DAF account is equally active or that every concern about DAFs should be dismissed. But it does mean the conversation should begin with accurate facts. As a category, DAFs are moving a significant percentage of charitable assets to operating charities each year.

Many major DAF sponsors have policies that encourage grantmaking. This point builds directly on the prior one. Some public commentary assumes that DAF sponsoring organizations want assets to remain in accounts indefinitely. But many major sponsors have policies that run counter to that assumption. For example, Fidelity Charitable requires grant activity at least every two years. Vanguard Charitable requires at least one grant every three years for an account to remain active. National Philanthropic Trust requires at least one $250 grant every 36 months under its Minimum Account Activity Policy. These policies don’t eliminate every concern about DAF activity, and they’re not a substitute for thoughtful donor engagement. But they’re important. They show that many major sponsors have formal mechanisms intended to keep charitable dollars moving.

DAF succession planning is one of the most underdeveloped opportunities in philanthropy. Many donors who establish DAFs likely have a default succession plan on file. They may have named a spouse, child, other family member, successor advisor or one or more charities to receive the remaining balance on their death. But having a default plan isn’t the same as having a thoughtful philanthropic succession plan. For nonprofits, this creates a significant opportunity. When a nonprofit receives grants from a DAF, it shouldn’t view those grants only as isolated transactions. A DAF grant may be a signal that the donor has already set aside charitable capital and is actively deciding how those dollars should be used. A nonprofit might respectfully ask: “Have you thought about the long-term plan for your donor-advised fund? If something happened to you tomorrow, do you know what would happen to the remaining balance? Would it be helpful for us to share how a future grant could extend the impact you are already making during your lifetime?” That isn’t a pressure tactic. It’s a stewardship conversation. It invites the donor to connect current giving, long-term values, family participation and legacy planning.

Financial advisors have contributed significantly to the growth of DAFs. Advisors are often the professionals tasked with helping donors address the timing, tax, asset and decision-making challenges described above. On the surface, it may be safe to assume that advisor recommendations of DAFs are primarily tax-driven or self-serving. But that misses the larger philanthropic role advisors are playing. The 2026 DAF Research Collaborative report, Financial Planning in the Age of Donor Advised Funds, based on six focus groups and a national survey of 669 financial advisors, found that DAFs are the second-most-commonly recommended charitable giving approach after direct giving. Thirty-five percent of advisors reported recommending DAFs most of the time or always, while another 21% recommended them about half of the time. By contrast, PFs were the least commonly recommended giving vehicle, with only 4% of advisors recommending them most of the time or always. Those numbers help explain why DAFs have grown so impressively. Advisors recognize that DAFs are accessible, flexible, tax-efficient, and practical for clients who want to organize charitable capital before they’ve finalized all grantmaking decisions. At the same time, the data also shows room for growth. Forty-four percent of advisors reported recommending DAFs only sometimes or never. That gap is one of the reasons professional education matters. More advisors need the confidence to discuss DAFs not only as tax management tools, but as vehicles for charitable planning, complex asset giving, family philanthropy, succession planning and long-term impact.