How to rescue your charitable donations from philanthropic purgatory
Right now, $326.5 billion is parked in a charitable purgatory.
Individual donors have moved the money to a specific type of holding account that requires them to give it away. Nonprofits need the funds. What’s the holdup?
The philanthropic world is trying to figure that out.
What are Donor Advised Funds?
An increasing number of Americans are using donor-advised funds (DAFs) to capture immediate tax write-offs, with the requirement that they direct the funds someday to qualified nonprofits.
But the money actually is given away in fits and starts, presenting an escalating challenge: What will prompt more donors to get the money out the door while also encouraging continued giving?
As income tax season approaches, millions of Americans will wrestle with the decisions they must eventually make about the DAFs they have set in motion. Millions more will wonder whether they should open DAFs. Everybody is in for challenging discussions with financial advisers, charities and, increasingly, the nonprofit “sponsors” that manage the money on its way from donor to charity.
“The challenge is, how do you incentivize people to get the money out?” Michael Thatcher said in an interview with Straight Arrow News. He is president and CEO of Charity Navigator, a platform that synthesizes charities’ track records and is itself a nonprofit that raises support.
Donating through a DAF requires several steps. First, a donor opens a DAF account with a nonprofit “sponsor” that manages holding accounts. Sponsors include community foundations and large national foundations created specifically to hold and manage DAF funds, such as those run by investment management firms Fidelity and Vanguard. Once the account is set up, donors can take as much time as they want to decide when, how and to whom they will direct the gifts.
A couple of years ago, Thatcher said, nonprofits openly debated the wisdom of requirements for how long money could linger in DAFs and whether it was wise to require minimum distributions. As money piled up in DAFs, some proposed regulations requiring minimum donation amounts and schedules.
To head off the specter of new rules, the philanthropic sector started setting standards for how and when donors should direct their gifts, said Thatcher. The goal was to encourage ever-more money flowing faster from donors through the DAFs to recipient charities.
In 2024, 25.3% of funds in DAF accounts were given away, 19% more than the year before, according to just-released data from the DAF Research Collaborative, a consortium of academics who track DAF giving and trends. That compares to the 8% of foundation assets given annually. (Since 1969, foundations have been required to give away at least 5% of their assets annually.)
That $64.9 billion given in 2024 is proof, said Thatcher, that the sector’s self-improvement plan is working.
“That payout rate of 25% says that the sponsors’ coaching completes the process,” he told SAN.
Holding DAFs to the same rules as foundations could be counterproductive if it results in smaller payouts, reversing the current trend, said Andrew Grumet, a partner with law firm Holland & Knight LLP.
“I’ve heard all sorts of proposals around mandatory payouts — 3%, 5% — no matter, 25% blows that away. I’m failing to understand the problem,” he told SAN.
Money piling up
More Americans than ever are socking away money in DAF accounts to fuel future giving. According to the DAF Research Collaborative, the amount of money in the accounts is growing even faster than the number of accounts: In 2024, saw $326.5 billion was stored in DAFs, up 27.5% from the year before, while the number of such accounts reached 3.6 million, up 18.4%.
That aggregate data obscures encouraging trends, said Dan Heist, an author of the DAF Research Collaborative report and an assistant professor of nonprofit management at the George W. Romney Institute for Public Service and Ethics at Brigham Young University.
“The idea that the money is just sitting there is not accurate,” he told SAN.
On average, funds sit in a DAF fund for three to four years while donors research giving options and come up with a giving plan, Heist said. Some people do move money through promptly, while others let it accumulate.
The giving gap can be partly explained by how DAFs are promoted to individuals: as a handy tax write-off that can be claimed immediately, decoupled from the actual giving decisions. That disconnect can imply that giving can be postponed indefinitely.
“You get the full amount of the tax benefit up front, even though you have a five-year window to decide how those funds should be distributed, and that can fall in line with your multi-year giving plan,” said Vincent Birardi, a senior wealth adviser with wealth management firm Halbert Hargrove.
The triangulated structure of DAFs can also be a giving speedbump.
“On an individual level, people think of the DAF as their money. It’s not their money any more,” said Thatcher. Once funds are transferred into the holding account with the sponsor, the donor can recommend, but not dictate, when and where it is given.
Traditionally, these sponsors have taken a passive role, but now, said Heist, some sponsors are actively encouraging grantmaking.
“Many of them have policies that if the account is dormant, they’ll require that grants are distributed,” said Paul Caspersen, the Wallace Chair of Learning and Professionalism in Philanthropy with the American College of Financial Services. “If there are no grants from an individual DAF within a year, typically, they will inform the donor to either make a giving recommendation or they’ll do it for them.”
In April 2025, the American College of Financial Services introduced a new certification for financial advisers who want to become more adept at working with DAF donors. It’s essential, said Caspersen, to equip financial advisers to help clients with holistic strategies — tax and giving — so they can consider additional ways to give through DAFs. For instance, he explained, some DAF sponsors can help convert illiquid assets, such as real estate or shares in a private firm, to a charitable donation.
The prospect of establishing a family giving tradition is a motivator for some, said Sheryl Morrison, a partner with the law firm Lathrop GPM. Her specialties include estate planning and charitable giving. For a sustainable plan, Morrison said it’s important that “the sponsor aligns with your vision as a donor.” For instance, a donor might keep future gifts close to home by choosing a sponsor serving their geographic area.
Fundraising frustrations
Charities also are figuring out how to get at the billions piled up in DAFs, seemingly waiting to be released out into the world for good.
“Recipient nonprofits are realizing that they need to do a better job of working with donors,” said Heist.
“It has felt very opaque on the nonprofit side,” said Christina Tzavaras Edwards, a nonprofit fundraising consultant, of donations that materialize from DAF sponsors, on behalf of an individual donor. “It can feel like the check comes from the sky. It’s hard to thank the donor and cultivate that relationship.”
They take hope in the fact that the money is already set aside for giving. That much-debated average three- to four-year lag time between opening an account and active giving is a chance for charities to make their pitch to donors, if they haven’t before.
“DAF holders have all the best intentions but no structure for giving,” said Erinn Andrews, founder of donor advisory firm GiveTeam. She encourages donors to think of their DAFs as a new type of checking account. About 80% of her clients now channel their gifts through DAFs.
For donors, setting up a DAF is the easy part, Andrews told SAN. The hard part is shifting from reactive giving to strategic giving. The very existence of the DAF invites a plan – and creates a chance for smaller and specialized nonprofits to be included.
“The DAF opens the door for thinking about their values and going out of their way to find organizations that are aligned with their goals,” she said. “That’s the basis for purposeful giving.”
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Ella Rae Greene, Editor In Chief
