Donor-Advised Fund

A donor-advised fund (DAF) is a philanthropic vehicle that allows donors to make a charitable contribution, receive an immediate tax deduction, and then recommend grants to qualified charities over time. DAFs are established at sponsoring organizations, which can be community foundations (like the Silicon Valley Community Foundation) or commercial sponsors affiliated with financial firms (like Fidelity Charitable, Schwab Charitable, or Vanguard Charitable). When a donor contributes cash, securities, or other assets to a DAF, the sponsoring organization takes legal ownership of the assets, and the contribution becomes irrevocable. The donor retains "advisory privileges" to recommend which charities receive grants, but the sponsor has ultimate discretion. DAFs have become the fastest-growing charitable vehicle in the United States, holding over $200 billion in assets. Critics argue that DAFs allow donors to claim tax deductions without any timeline for distributing funds to working charities, creating a "warehousing" effect. Proponents counter that DAFs democratize philanthropy by giving smaller donors access to strategic giving tools previously available only to those with private foundations. The average DAF grant payout rate is approximately 20-25% annually, significantly higher than the 5% minimum required of private foundations.