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5 Myths About DAFs (And What You Need to Know)

As donor-advised funds grow in popularity among individual donors and companies, so do misconceptions about their purpose. Separate DAF myths from DAF facts with GlobalGiving’s Sarah Groninger.


 

Since the 1930s, donor-advised funds, often referred to as DAFs, have provided individuals and companies with a mechanism to give philanthropically. DAFS are giving accounts that enable donors to make charitable contributions and receive immediate tax deductions but then recommend grants from the fund over time. The legal structure for these funds wasn’t established by Congress until the late 1960s, and their popularity didn’t begin to rise until the 1990s.

Growth in giving through DAFs has recently started to outpace growth in traditional giving, and DAFs are getting a lot of attention in philanthropy circles. Charitable giving in the United States reached an all-time high in 2023, growing 1.9% over the previous year, according to Giving USA. In that same year, Giving USA found contributions to donor-advised funds grew 9% to $85 billion in 2022.

Want to know more about the growing charitable vehicle of DAFs? Let’s start with five common myths about DAFs, followed by the facts:

    1. DAFs are just a fad.

    Donor-advised funds have been around for decades. New York Community Trust established the first donor-advised fund in 1931. Fidelity Investments formally institutionalized this charitable vehicle in the 1990s when it created its DAF offering as an independent public charity and introduced DAFs into the mainstream financial sector. Today, DAFs remain the fastest-growing giving vehicle in the US. In 2022, grants disbursed from donor-advised funds reached a record high of $52 billion. This figure represents a 9% increase from 2021 and accounts for 9% of total giving in 2022.

    2. You can’t give internationally through a DAF.

    While most DAFs are set up to facilitate domestic charitable giving, there are a few organizations that offer international grantmaking. And those that aren’t set up to support domestic and international giving typically partner with an intermediary organization—like GlobalGiving—that is a registered charitable entity in the United States which is also able to process grants abroad. Giving through an intermediary provides an added layer of risk mitigation for the donor and an international disbursement mechanism for the fund, ultimately increasing the donor’s global reach.

    3. You have to be a millionaire to set up a DAF.

    Quite the contrary. You can open a DAF with no minimum contribution through many partners. For example, you can set up a donor-advised fund with Fidelity Charitable Gift Fund with whatever level of contribution suits you. Most local community foundations also offer DAFs, although their minimums vary and tend to be higher. DAFs also tend to have lower overhead and can be a viable alternative to starting a charitable foundation. At the end of 2021, half of all DAFs had total assets of less than $50,000 and only 7% had balances of $1 million or more, according to the 2024 National Study on Donor Advised Funds.

    4. You need to partner with a big financial institution to open a DAF.

    While most traditional financial institutions offer this charitable vehicle, your local community foundation likely also has a DAF offering. Did you know: About a quarter of the billions nationally invested in DAFs in 2022 was invested at community foundations?

    5. Through your DAF, you can give to any charity you want.

    Like with any charitable giving, you want to have confidence that the charities you support through your DAF have been vetted. Partnering with intermediaries like GlobalGiving provides DAFs the opportunity to leverage vetting expertise to verify that organizations (both in the US and internationally) are confirmed charitable entities with demonstrable community impact. Furthermore, international donations and grants are subject to additional regulation from the Foreign Corrupt Practices Act (FCPA), UK Bribery Act, and more. There are dozens of watchlists meant to prevent money laundering, terrorism, and corruption, and a review of these becomes even more critical when disbursing funds internationally. For more information about the importance of vetting, see our seven reasons to conduct deeper due diligence before grantmaking.

    Learn more about GlobalGiving’s vetting and grantmaking services.

    LEARN MORE

    Featured Photo: Help bring Financial Stability to Uganda by Opportunity International

     

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