Definition

In the United States, a donor-advised fund is a charitable giving vehicle administered by a public charity created to manage charitable donations on behalf of organizations, families, or individuals. To participate in a donor-advised fund, a donating individual or organization opens an account in the fund and deposits cash, securities, or other financial instruments. They surrender ownership of anything they put in the fund, but retain advisory privileges over how their account is invested, and how it distributes money to charities.

A Donor Advised Fund or a DAF as it is privately known is a fund that is created for the sole purpose of managing donations for charities on behalf of other organizations or individual. They are typically administered though and by third parties.

Currently donor advised funds are becoming increasingly popular day by day. This is because they offer donors relative ease of management, while at the same time allowing him/her to retain considerable authority over both the placement as well as the distribution of overall charitable contributions. This also helps decrease transaction costs for various companies as compared to handling donations privately.

Participation

For participation, a donating organization or individual has to open an account in the fund in which he deposits securities, cash, or any other financial instruments that he may wish to donate to a charitable concern. . In this way he effectively surrenders ownership of all the assets they have put in the fund (both liquid cash and near cash securities), however, he does preserve certain advisory rights as to how his contributions are utilized and distributed amongst various charities.

DAFs: A historical perspective

Donor-Advised Funds were initially conceived way back in the 1930's, however, the American government did not establish any legal structure or formal systems of rules and regulations for them until 1969. Nevertheless it was only from the 1990s and onwards did they begin to make their presence felt both in their perceived attractiveness as well as their increasing visibility.

As of now have they have become both corporate and individual philanthropy's fastest-growing segment. In fact today, they account for no less than a whopping 3 percent of all charitable contributions in USA.

Widespread Appeal

A key reason because of which they have such widespread appeal is that Individuals may take an immediate tax deduction against the entire amount they have contributed to a donor-advised fund, however there is no corresponding rule as to how soon the funds so contributed have to be eventually distributed.

Further Reading

The Wolf in Charity's Clothing: Behavioral Economics and the Case for Donor-Advised Fund Reform
heinonline.org [PDF]
… Download Citation. Download article citation data for: Understanding Donor-Advised Funds: How Grants Flow During Recessions. H. Daniel Heist and Danielle Vance-McMullen. Nonprofit and Voluntary Sector Quarterly 2019 48:5, 1066-1093. Download Citation …

Behavioral Finance of Impact Investing: The Case of Donor-Advised Funds
scholars.unh.edu [PDF]
… Download Citation. Download article citation data for: Understanding Donor-Advised Funds: How Grants Flow During Recessions. H. Daniel Heist and Danielle Vance-McMullen. Nonprofit and Voluntary Sector Quarterly 2019 48:5, 1066-1093. Download Citation …

One casualty of global economic crisis: uncertain finances for HIV/AIDS programs
jamanetwork.com [PDF]
… Download Citation. Download article citation data for: Understanding Donor-Advised Funds: How Grants Flow During Recessions. H. Daniel Heist and Danielle Vance-McMullen. Nonprofit and Voluntary Sector Quarterly 2019 48:5, 1066-1093. Download Citation …

An Analytic Approach to Selecting a Nonprofit for Donation.
search.ebscohost.com [PDF]
… Download Citation. Download article citation data for: Understanding Donor-Advised Funds: How Grants Flow During Recessions. H. Daniel Heist and Danielle Vance-McMullen. Nonprofit and Voluntary Sector Quarterly 2019 48:5, 1066-1093. Download Citation …

A Note on the Economics of Philanthropy
www.econstor.eu [PDF]
… Download Citation. Download article citation data for: Understanding Donor-Advised Funds: How Grants Flow During Recessions. H. Daniel Heist and Danielle Vance-McMullen. Nonprofit and Voluntary Sector Quarterly 2019 48:5, 1066-1093. Download Citation …

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