How a Donor-Advised Fund (DAF) Works

A donor-advised fund (DAF) offers an easy way for a donor to make significant charitable gifts over a long period of time. A DAF is similar to a private foundation but requires less money, time, legal assistance, and administration to establish and maintain. Because DAFs are public charities, they also enjoy greater tax advantages than private foundations.

Donor A

Opens an account with the DAF and makes an irrevocable contribution of assets.

Contributions are generally tax deductible by the donor in the year they are paid to the DAF.*

Offers DAF nonbinding advice about how grants to Distributee Charities should be made.

DAF creates a separate account to hold assets contributed by Donor A. The DAF owns the assets and has ultimate control over distributions.
Donor A's Account
Donor X's Account Donor Y's Account Donor Z's Account

While the DAF will generally follow a donor's recommendations, it is not bound by them. The DAF has control over which charities receive contributions and when contributions are made.
Distributee Charity
Distributee Charity
Distributee Charity Three

*The amount of the deduction depends on several factors, including the amount of the contribution, the type of property donated, and the donor's adjusted gross income (AGI). Generally, deductions are limited to 60 percent of the donor's AGI. If the donor makes a gift of long-term capital gain property (such as appreciated stock that has been held for longer than one year), the deduction is limited to 30 percent of the donor's AGI. The value of the charitable deduction is determined using the fair market value of the property on the date of the donation. Any amount that cannot be deducted in the current year can be carried over and deducted for up to five succeeding years.