When are DAFs the Right Choice?
Donor-advised funds have grown from an obscure giving vehicle into one of philanthropy’s most widely used tools. They’ve become one of the fastest-growing methods of charitable giving in the United States, and there are now more than 1,485 DAF sponsors holding approximately $328 billion in total assets. In the most recent full tracking year (2024), DAFs took in $89.6 billion in contributions and distributed an annual record of $64.9 billion in grants to charities.
DAFs are highly popular with younger cohorts and show disproportionately higher adoption rates among Millennials and Gen Z than among older generations. While the majority of DAF accounts are still held by older, wealthier individuals—largely due to historical wealth concentration—the rate of adoption and active use among younger donors is accelerating rapidly.
However, DAFs aren’t the right fit for every situation. It’s worth walking through four situations in which a DAF is often the right recommendation, rather than simply an acceptable one.
A Liquidity Event or High-Income Year
A client sells a business, exercises concentrated stock holdings or otherwise sees an income spike, such as a large bonus or inheritance, and wants to offset it with a charitable deduction but hasn’t decided which organizations to support. A DAF lets the client contribute and deduct in the high-income year while taking time for thoughtful grant decisions later. This is one of the most common uses of a DAF and often the scenario that first brings clients and their advisors to consider one.
Complex or Illiquid Asset Gifting
Clients often hold appreciated assets that small charities can’t accept directly because of limited planned-giving expertise. These include privately held business interests, real estate, restricted stock and limited liability company interests. Gifting assets like these to a DAF well before a planned sale lets the client avoid capital gains tax on the appreciation and take a fair market value deduction, while the sponsor handles liquidation and pays out grants in cash. Not every sponsor accepts every asset type, so advisors should confirm capabilities first. For sponsors with the right infrastructure, this is a value many smaller charities can’t offer directly. Sponsors have policies and practices for considering these assets, and they’ll do due diligence on the asset and how they can sell it before they accept the gift. The sponsoring charity may or may not accept the suggested gifts that advisors or their clients wish to give. The more complex the asset is, the more time a charity will need to evaluate it.
Bunching Charitable Deductions
Because the standard deduction rose sharply under the Tax Cuts and Jobs Act of 2017, and due to the One Big Beautiful Bill Act tax change, many clients who give modestly and consistently no longer clear the threshold to itemize. A DAF lets a client contribute several years’ worth of giving in one year, itemize and deduct fully that year, then keep granting to their usual charities annually as if nothing changed. This applies broadly, and advisors should raise it with clients who give steadily but have stopped itemizing. Charitable deduction laws can and have changed, so advisors should stay current on how they affect their clients.
Family Philanthropy Without Foundation Overhead
Clients who want to involve children or grandchildren in giving decisions often assume a private foundation (PF) is the only way to formalize that. A DAF offers a lower cost alternative: Successor advisors can be named, family members can be added as grant recommenders and giving traditions can be built without the cost of a separate legal entity. For families unsure of how committed they are to a formal, multigenerational structure, a DAF is a lower-stakes way to find out. They can pay out all the assets in a DAF and then launch a PF or have them side by side, but you can’t transfer DAF assets to a PF.
The Advisor’s Role
Most advisors will encounter DAFs regularly, whether recommending one directly or weighing a client’s existing DAF as part of a broader plan. The vehicle’s flexibility is exactly what makes it easy to describe imprecisely. A fund that can hold nearly any asset, support multigenerational giving and adapt to a wide range of client circumstances doesn’t fit neatly into one sentence.
Advisors who understand the actual mechanics, what donors do and don’t control, how DAFs compare structurally to PFs and how they genuinely solve problems other vehicles can’t, are better positioned to use DAFs deliberately, as one tool among several, rather than dismissing or defaulting to them out of incomplete information.
*This article is an abbreviated summary of “Five Misconceptions About Donor-Advised Funds,” which appeared in the October 2026 issue of Trusts & Estates.
