A donor-advised fund (DAF) is a charitable account held at a sponsoring public charity that gives the donor an immediate tax deduction for money contributed, while letting them recommend when and where the grants are eventually made.
In plain terms
You give money away for tax purposes today and decide who actually receives it later — possibly much later. The sponsoring charity legally owns the assets and has final say over grants; in practice, sponsors follow the donor’s recommendations almost without exception. It is the most popular charitable vehicle in the United States and the least understood, largely because the deduction and the donation happen at different times.
How it works
The donor contributes cash or, more commonly, appreciated assets — public stock, private company shares, real estate, crypto — to an account at a sponsor. National sponsors are typically affiliated with large brokerages; community foundations and single-issue charities also sponsor DAFs.
The tax result is the appeal. Contributing an appreciated asset held more than a year produces a deduction for its full fair market value while avoiding the capital gains tax that a sale would have triggered. That combination is why DAFs are the standard destination for a concentrated stock position ahead of a liquidity event.
The assets are then invested and grow tax-free. The donor recommends grants to qualifying charities over any timeframe they choose. There is no legal requirement that any grant ever be made — the deduction is complete at contribution, and no payout deadline applies to an individual account.
The numbers
- Deduction timing: immediate, in the year of contribution.
- Deduction limits: generally up to 60% of adjusted gross income for cash and 30% for appreciated assets, with a five-year carryforward.
- Capital gains avoided: the full 23.8% federal rate on appreciated assets held more than a year, plus state tax.
- Sponsor administrative fee: commonly around 0.6% of assets at national sponsors, tiering down for large accounts, on top of underlying investment fees.
- US DAF sponsors (FY2024): 1,512 — 103 national, 803 community foundations, 606 single-issue charities.
- Aggregate payout rate: at or above 20% of assets in every year on record, and near 24% in the most recent full reporting cycle. Note this is an aggregate figure across all accounts, not a floor for any individual one.
- Required minimum payout: none.
What people get wrong
Both sides of the payout argument overstate their case. Critics describe DAFs as warehouses where money sits indefinitely; the aggregate payout rate has never dropped below 20%, which is far above the 5% a private foundation must distribute. Defenders cite that aggregate rate as if it settles the question; it does not, because a high average is entirely compatible with a large tail of dormant accounts — an active account granting 100% masks a dozen granting nothing. The honest position is that the aggregate is healthy, the distribution behind it is unknown at the account level, and the policy debate is really about whether the deduction should be available years before the charity sees the money.
The second misconception is that DAFs are for the very rich. Minimums at national sponsors are often modest or zero, and most accounts are small; the assets, as with most things in this territory, are concentrated at the top.
Related
Read more: Philanthropy: Giving, Status, and Influence · The Giving Pledge: Public Promises, Private Delivery · Taxes: How Wealth Is Structured and Preserved
See also: Private foundation · Charitable remainder trust · Step-up in basis