Donor-Advised Funds: Opportunities and Challenges in Charitable Giving for Non-profits

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Stephen R. Rolandi
October 13, 2025

As reported in PA Times and elsewhere, I was elected last spring as a Term Trustee for the New Amsterdam History Center (NAHC), which was established twenty years ago and chartered by New York State as a virtual not-for-profit educational association that links the past of New York City to the present through an extensive program of lectures, tours, publications and other media to enrich the understanding of the diverse peoples who contributed to the City’s founding nearly 400 years ago.

In my capacity as a board member, I serve as Chair of the NAHC’s Development and Finance Committee, charged with developing and implementing strategies for external support of the association’s mission and activities. My committee’s work to date has included taking a closer look at Donor-Advised Funds as a potential source of external support for NAHC’s mission and its varied activities and soliciting such funds.

As Donor-Advised Funds (DAF) are the nation’s newest (some would say hottest) charitable giving strategy, this month’s column focuses on DAFs.

What are DAFs?

Donor-advised funds had their origin with community foundations, sometimes known as community trusts. These entities are designed primarily to attract large contributions of a capital or endowment nature for the benefit of a specified community or area. The first such organization to utilize DAFs was established in Cleveland, Ohio in 1914. Later, during the 1930s, the New York Community Trust pioneered use of donor-advised funds with an assist from John D. Rockefeller.

In the United States, a DAF is a charitable giving vehicle administered by a public charity created to manage charitable donations made on behalf of organizations, families or individuals. A contribution that a donor makes to a donor-advised fund is 100% irrevocable and ultimately intended as a final donation toward a not-for-profit 501(c)(3) organization. Such funds provide a flexible way for donors to pass energy through to charities as an alternative to direct giving or creating a tax-exempt foundation. DAFs became more popular after the Second World War to enable the private sector to finance public welfare programs and projects. The Tax Reform Act of 1969 extended the designation of “public charity” to protect individuals’ charitable assets from being treated as private foundations.

In 2015, donor-advised funds constituted more than 269,000 DAF accounts holding over $78 billion in assets. Currently (as of 2023), there are over 500,000 DAF accounts with more than $250 billion in assets. DAFs are now considered the “bullet train” in philanthropic circles.

Here’s how a DAF works – suppose you just inherited $100,000 from a relative who passed away. Not needing the money for your day-to-day needs, you decide to donate this inherited money to a charity and would, of course, be happy to get the resulting charitable tax deduction(s). But perhaps you may not want to distribute $100,000 on your own to several charities.

You decide to consult a lawyer with expertise in taxes and not-for-profit organizations and you create a donor-advised fund through a financial services entity such as Fidelity, Schwab or Vanguard.

Suppose you live in the City of Ferndale (a fictitious municipality). You eventually reach out to the Ferndale Community Trust Fund, which is a public charity that maintains DAFs for a variety of programs.

At some point, you execute a donor-advised fund agreement and perhaps designate your attorney as the donor advisor. You write a check to the selected Community Trust Fund; you are then free to advise the Fund to whom and how much money you wish to contribute. It should be pointed out that individual donors to DAFs receive immediate tax benefits as a result of this donation; further, they can be more strategic about one’s giving decisions.

Advantages

There are several advantages in utilizing DAFs:

• An immediate tax deduction, as the tax benefits are available up front, as well as realizing unrealized capital gains (the tax base is transferred to the DAF)
• Timing and gift flexibility – an individual’s contributed funds are invested in index funds and then placed in the chosen DAF. One can wind up contributing more than initially donated because one’s money has already been invested
• Potential for tax-free philanthropic asset growth
• The donor maintains authority over funds placed in the DAF
• It can also facilitate the planning of future generational estates (if one wants to designate one’s children or other heirs as fund advisors)
• Some see DAFs as an alternative to soliciting funds from foundations

Disadvantages

There are also some disadvantages to this type of philanthropic giving:

• There are not many investment possibilities; the range of possibilities can be restricted depending on the financial platform one selects for the fund to set up
• Account and fund management fees – so-called “hidden costs.” These can be significantly high (just like any mutual fund). Some management fees can be as high as 1.5% of the total asset being invested. The less money going to charity, the higher the fees that are ultimately paid out
• One cannot revoke DAF donations
• Poor investing – not knowing all the risks – can reduce the impact of one’s DAF donation

Some Conclusions

More individuals and not-for-profit organizations are finding DAFs an attractive alternative to other forms of charitable giving. In the current environment where many NFP entities are facing significant cuts in government grants as a result of changes in federal policy and tax law, DAFs may be very attractive to different NFP agencies and associations.

It remains to be seen if DAFs can pick up the slack in funding many worthwhile causes. I plan on writing another column in the future to see how DAFs are working in the current environment, including the NAHC, whose board I currently serve on.

For Further Reading and Research:

I recommend the following sources to learn more about this newest area of philanthropy and if you work or volunteer for a not-for-profit organization seeking external funding:

• Bruce R. Hopkins, “Donor-Advised Funds: Law and Policy,” Dorrance Publishing Company (2020)
• Fidelity Charitable, “2023 Giving Report,” see www.fidelitycharitable.org/insights/2023-giving-report.html
• Drew Lindsay, “A Short History of the Fast and Furious Rise of DAFs,” The Chronicle of Philanthropy, September 20, 2023
• CANDID (https://candid.org). CANDID is the successor organization to the Foundation Center. This is an excellent and very comprehensive source of data to conduct research funding and find entities that provide funding; the platform is sorted by geographic and program area (arts, education, environmental advocacy, democracy, etc.)

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Author: Stephen R. Rolandi retired in 2015 after serving with the State and City of New York. He holds BA and MPA degrees from New York University and studied law at Brooklyn Law School. He teaches public finance and management as an Adjunct Professor of Public Administration at John Jay College of Criminal Justice (CUNY) and Pace University. Professor Rolandi is a Trustee of NECoPA and the New Amsterdam History Center; President-emeritus of ASPA’s New York Metropolitan Chapter and past Senior National Council Representative. He has served on many association boards and is a frequent guest commentator on public affairs and political issues facing the nation and New York State. You can reach him at: [email protected] or [email protected] or 914.441.3399 or 212.237.8000.

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