About Donor-Advised Funds

DAFs date back to the 1920s when the New York Community Trust first began to group individual accounts under its central management.2 However, they have grown mainly since 2006, when they were legislatively formalized under a provision of the Pension Protection Act.3 In 2008, the IRS issued a rules interpretation that further laid the foundation for the proliferation of DAFs.4 The IRS ruled that nonprofit organizations that served as a home for DAFs were themselves serving a bona fide nonprofitable charitable purpose. In the years since, major national financial management firms—including Fidelity, Vanguard, and Schwab—have established nonprofit charitable arms through which individual investors can establish individual charitable accounts managed by large central offices.

Donors typically choose, as with individual retirement accounts, whether they want to invest undisbursed funds aggressively or conservatively, a choice that likely reflects the time frame in which they plan to grant the moneys. (A conservative strategy would imply the hope for long-term growth, perhaps with a major gift in mind, at some point in the future.) DAFs also provide the option of anonymous giving, something some donors backing controversial or personal causes may prefer.

Charitable assets under management have grown. According to the National Philanthropic Trust 2019 DAF report:

Charitable assets in donor-advised funds grew from $112.10 billion in 2017 to $121.42 billion in 2018, an 8.3 percent increase. From 2014 through 2018, charitable assets rose by a compound annual growth rate of 14.7 percent. Growth includes contributions and investment yield less assets distributed in grants.5 

Yet, individual accounts have remained far smaller than the assets controlled by major foundations. Compared to the Bill & Melinda Gates Foundation ($36 billion),6 the Ford Foundation ($12 billion),7 and the MacArthur Foundation ($7 billion),8 DAF accounts average $166,000.9 They are, in effect, small, personal foundations for middle-class donors. Arguably, DAFs help democratize philanthropy, making it more accessible to a wider reach of donors. While the number of DAF accounts has steadily risen in the past few years, reaching more than 720,000, the average asset total in DAF accounts has fallen, indicating their growing accessibility.10 Increasingly, DAFs are a vehicle for middle-class donors to establish what amount to mini-foundations managed on their behalf by major financial firms.