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Understanding DAFs
What is a Donor Advised Fund?
What is a Donor Advised Fund?

A basic overview of Donor Advised Funds

Elon Packin avatar
Written by Elon Packin
Updated over a week ago

There are a lot of tax advantaged ways to save for specific things in the US. 401K's for retirement, 529 accounts for education, HSAs for healthcare.

A Donor Advised Fund ("DAF") is essentially the same just for charitable giving.

Donors can put money (or more complex assets like stock, crypto, or real estate) into a DAF, receive an immediate tax deduction, and then see the money in their DAF account be invested and grow tax-free. The donor then recommends grants from their DAF account to 501c3 nonprofits, after which the DAF provider can approve and disperse the funds. See: What are some of the restrictions on DAF use?

Importantly, this separates the financial decision of how much do I want to give to charity from the philanthropic decision of which charities do I want to support and when. This is one of the many reasons why DAF accounts are the fastest growing vehicle in philanthropy, now making up 17% of philanthropy up from just 7% in 2017.

Technically, when a donor puts money into a DAF account, it's no longer their money. It is now under the control of the sponsoring DAF provider. Yet, in practice, the DAF account holder has near total control as to which organization will receive the money in their account. See: What are the different types of DAF providers?

Importantly, once money is put into a DAF account, the donor can never get the money back. Those donated dollars now only have two options: Sit in the account and grow or be given to an operating nonprofit. It's Chariot's mission to move more of the roughly quarter trillion dollars in the first bucket into the second bucket.

As an individual, there are a lot of benefits to opening up a DAF account. Is a Donor Advised Fund right for you? As a nonprofit, it's important to make sure your are properly set up to capitalize on the growing DAF wave. Explore to learn more, and if you have questions you can learn more about all of Chariot's solutions here.

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