Donor-Advised Funds: What They Are and How Nonprofits Can Maximize DAF Giving

Donor-advised funds (DAFs) offer nonprofits the opportunity to increase revenue and diversify giving streams. Donors contribute assets for investment, allowing the fund to mature tax-free. These are quite flexible giving vehicles because the DAF manager grants funds to nonprofits based on donor recommendations. Pro tip: utilizing Donor Management Software makes tracking and managing DAFs easy

Although there are some limitations on DAFs, nonprofit organizations should certainly solicit grants from DAFs and inquire with donors who use DAFs as a means of giving. 

The money grows over time, so in periods of economic instability or after a donor retires or transfers control to their family, DAF giving can remain consistent and stable because the irrevocable fund is already established.   

What Is A Donor-Advised Fund And How Does It Work?

A donor-advised fund (DAF) is an investment account specifically developed for nonprofit beneficiaries. Donors contribute assets for investment, allowing the fund to mature tax-free. These are quite flexible giving vehicles because the DAF manager grants funds to nonprofits based on donor recommendations.

DAFs are funded by individuals, families, trusts, estates, and groups such as associations and workplace giving programs.  

Funding to a DAF can come in various forms, including cash, wire transfers, checks, stocks, securities, mutual funds, real estate, cryptocurrency, and more. For any investment to which it applies, capital gains taxes don’t apply because the sole beneficiaries are nonprofits, which, by design, don’t pay taxes. 

There are benefits and considerations for donors and nonprofits when working with DAFs. 

Who Benefits From Donor-Advised Funds?

DAFs create value for numerous stakeholders across the philanthropic ecosystem. For donors, DAFs offer an efficient way to manage charitable giving by providing an immediate tax deduction, the ability to contribute a variety of assets, and the flexibility to recommend grants to nonprofits over time. DAFs can also simplify recordkeeping and administrative responsibilities when compared to establishing a private foundation.

Nonprofits benefit from access to the growing pool of assets held in DAFs. Community foundations can also benefit by helping donors achieve their charitable goals and directing resources toward local and national charitable causes. Together, these groups create a giving ecosystem that can increase charitable participation, encourage long-term philanthropy, and strengthen nonprofit funding opportunities.

Donor-Advised Funds For Donors

DAFs give donors near-instant tax benefits along with the ability to define how and when funds are distributed. 

While the gifting may be delayed, the total contribution to a DAF is likely to be higher than if a donor gave directly to a nonprofit. Most DAF gifts are unrestricted, giving nonprofit organizations greater discretion in their use. This potential for increased giving over time should instill confidence in nonprofits about the benefits of DAFs.    

Benefits of DAFs for Donors

The benefits of DAFs for donors are plentiful. Not only is there an immediate tax benefit, but it’s an amazing avenue for legacy planning, as the money grows tax-free. Additionally, the giving options are varied: you can donate stock, cash, cryptocurrency, and more. This donation option also allows donors to give anonymously. 

Disadvantages of DAFs for Donors

While donors may contribute as often and as much as they wish, most DAFs require a significant initial contribution (typically $25,000 or more). Additionally, unlike other investment accounts, donations to a DAF are irreversible (they cannot be returned to the donor).  

Grants from a DAF cannot be used for anything that benefits the donor, such as tickets, tuition, memberships, or auction items. Hence, using DAF grants for sponsorships is generally not possible.  Most DAF grants are unrestricted, which may limit donor interest. Furthermore, if a charity is less than five years old, DAFs scrutinize its validity before making any gifts. 

Donor-Advised Funds For Nonprofits

DAFs offer significant potential for nonprofits to grow and diversify their revenue. Donors get immediate tax benefits and bypass capital gains taxes. However, some parameters surrounding DAFs may price out potential donors and limit their control over how and when grants are given.  

Benefits of DAFs for Nonprofits

DAFs offer many benefits to Nonprofits, including the lack of transaction fees. Additionally, gifts are unrestricted, with no formal reporting and a very limited administrative burden.  

One of the biggest benefits is that DAFs tend to offer a higher giving total over time, as the money grows tax-free.  

Disadvantages & Considerations For Nonprofits

For nonprofits, DAF grants can be made anonymously, and personal information is more closely guarded, making donor retention difficult to measure and stewardship perhaps impossible to measure. As previously mentioned, DAFs have no required distribution requirements, so the intended use of the funds is ultimately at the discretion of DAF managers. While donors can advise on grant-making, the ultimate decision lies with the DAF manager or sponsor, so donor control is likely limited.  

DAFs Vs. Other Giving Vehicles

DAFs sit between direct gifts and private foundations—offering stronger tax advantages and flexibility than direct giving, while requiring far less administrative complexity than a private foundation. They also provide nonprofits with access to philanthropic dollars that might otherwise go unallocated. However, DAFs’ funding is exponentially outpacing DAFs’ grant-making. They are investment accounts designed to grow over time. Therefore, donors’ contributions are granted over time, which might feel inauspicious to nonprofits. 

Vehicle	Tax Benefit	Donor Control	Nonprofit Access	Complexity
Donor-Advised Fund (DAF)	Immediate charitable tax deduction; assets can grow tax-free	Moderate — donor recommends grants, sponsoring organization has final authority	Limited visibility; nonprofits often receive grants without donor details	Low–Moderate
Direct Gift	Immediate charitable tax deduction (if eligible)	High — donor chooses recipient and timing	Full and immediate access to funds	Low
Bequest (Planned Gift)	Potential estate tax benefits; no current income tax deduction	High — donor retains full control during lifetime	No access until the estate is settled after the donor’s death	Low
Charitable Remainder Trust (CRT)	Partial income tax deduction, potential capital gains tax advantages, and a possible income stream	High — donor sets trust terms and beneficiaries	Deferred access; nonprofit receives remaining assets after trust term ends	High
Private Foundation	Charitable tax deduction (subject to different limits), potential tax advantages on appreciated assets	Very high — donor/family controls grantmaking and investment decisions	Access depends on the foundation’s grantmaking priorities and process	Very High

How Nonprofits Can Actively Solicit DAF Gifts

A great way to explore DAFs with your donors is to educate them on how a DAF can have an immediate impact on your organization. This involves targeted storytelling and relationship-building through donor segmentation. Ask them whether they have a DAF, plan to establish one, or are familiar with one; this will help you identify areas for education and growth, as well as opportunities to nurture relationships with donors who have established DAFs. Additionally, develop clear tracking and reporting processes for DAF contributions to enhance transparency and donor confidence.

You should also incorporate language about DAFs into your existing marketing tactics, such as emails, social media, and direct snail mail. 

Provide easy opportunities for DAFs to give to your organization. Include a page on your organization’s website to promote DAFs and how you can work together with donors who have DAFs. Create a DAF-specific giving form that makes it easy for donors to pledge from a DAF to your organization. Be sure to include a question asking donors if they have a DAF fund, so you can better identify potential opportunities for them. 

While donors cannot derive any tangible benefits associated with costs, such as a sponsor advertisement, ticket, or VIP access, opportunities like unrestricted giving, such as a paddle raise, are excellent stewardship opportunities.  Don’t forget to reach out to and build relationships with DAF managers or sponsors. Some DAFs have an online portal for donors to recommend contributions, so you’ll want to ensure your organization can be easily found and that your information is up-to-date and accurate. Some DAFs utilize charity research platforms like GuideStar to research nonprofits, so ensure those are up to date as well.  

Make sure to send thank-you notes to both the DAF donor (if the gift was not made anonymously) and the DAF manager, separately. While the check or contribution comes directly from the DAF, the contribution itself was recommended by the donor.   

Real-World Example: How Bloom Our Youth Grew Fundraising With Givesmart

Bloom Our Youth has been a GiveSmart customer for over three years. At the height of the pandemic, their Bloom Closet program overflowed with in-kind donations and saw increased awareness of their mission. They found themselves with willing volunteers and fundraisers, and the expanded GiveSmart platform allowed them to set up branded giving opportunities for these partners to use.   

The fundraising and donor management foundation they have established with GiveSmart, along with the growth they’ve worked hard to achieve, has set them up to realize this vision. Read the full story here.

How Donor Management Software Helps You Track And Grow DAF Giving

Every nonprofit’s journey is unique, and your technology should reflect your specific scale, mission, and complexity. The most important step is identifying a technology partner rather than just a software provider. Your nonprofit requires a platform that can handle DAF tracking, integrate with various payment platforms, and reduce manual time and effort for your team.

Conclusion

To grow your mission, you need a cultivated platform that pushes beyond simple donation forms. Fundraising software brings together donor history, engagement, and communication preferences into a single data source. Momentive provides a range of platforms tailored to where you are today and where you’re headed tomorrow. Schedule your demo today!

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