FAQ

A Donor Advised Fund (DAF) is a fund or account established at a Section 501(c)(3) public charity sponsoring organization to help people efficiently coordinate donations to charitable causes. As soon as an individual transfers money to a DAF, they surrender legal ownership over the funds and are eligible to receive the tax benefits of a charitable donation. The donor is then able to advise on how the contributions are deployed for charitable use.

DAFs have exploded in popularity in the US over the past decade as they provide individuals with a convenient and efficient way to donate to charities while simultaneously de-linking the task of deciding how much you want to donate from the task of deciding to whom the funds should be granted.  

The unintended consequence of delinking these steps, however, is that individuals are often slow to allocate funds to a final recipient. In fact, over $125B currently sits unallocated in DAFs in the US.

If you thought money sitting in your donor-advised fund (DAF) could only be used to grant to 501(c)(3) organizations, you are not alone. This myth exists because on the largest DAF platforms it’s true. Perhaps surprisingly, this restriction is not due to IRS regulations but instead imposed by the DAFs themselves as the easiest way to prove their activities support a charitable purpose. Per applicable regulations, funds contributed to DAFs are required to be used for charitable purposes, but they are not limited to supporting only nonprofit organizations.

Innovators in the field recognize that often the most effective path to significant charitable impact involves working with both nonprofit & for-profit organizations.  These innovators are structuring their DAF platforms and processes to enable funds to be invested in for-profit organizations so long as that investment is furthering the DAF’s charitable goals.

If you are interested in learning more about how you can use tax-advantaged funds to invest in under-represented founders, please reach out to us here.