Key Term

What is Donor-Advised Fund?

Definition

A donor-advised fund (DAF) is a charitable giving vehicle administered by a public charity that allows donors to make irrevocable contributions to the fund, receive an immediate tax deduction, and then recommend grants from the fund to qualified nonprofit organizations over time. The assets in the fund can be invested and grow tax-free until the donor decides to recommend grants to charities.

Significance

Donor-advised funds have become increasingly popular as they offer significant flexibility and tax advantages for philanthropic individuals. They allow donors to separate the timing of their tax deduction from their charitable giving decisions, potentially maximize deductions in high-income years, and simplify giving by consolidating charitable contributions into a single account. DAFs also provide an alternative to private foundations with lower costs and administrative burdens, while still allowing donors to create a lasting charitable legacy and involve family members in giving decisions.