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Six Benefits of Establishing a DAF for Clients

DAFs allow a wider range of clients to experience the joy of giving and enable charities to receive more consistent and larger grants.      

Though approximately 500,000 donors have already established donor-advised funds (DAFs), many more could and probably should. Here are six benefits to using DAFs.

Tax Advantages

The tax advantages of creating and contributing to DAFs have been well-documented, but the other benefits are often more meaningful to clients. These charitable vehicles have enabled them and their families to better organize their giving, develop a charitable mission, engage their children and provide greater support to causes and charities that they’re passionate about.

Help with Future Planning

Philanthropy is designed to help organizations and individuals in need, but it also enables donors to experience a great amount of satisfaction, pride and accomplishment. Creating a DAF will help clients plan their giving not just for a particular moment but also for the next year, decade or generation. 

Some create DAFs because they are very simple to use, and they aren’t required to adhere to cumbersome and complicated private foundation rules. Others who open and fund DAF accounts sometimes become more thoughtful about what they want to accomplish than when they were just sending checks or donating stock to individual charities previously.

Easy Ability to Give During Pandemic

During the pandemic, DAFs allowed donors to provide generous support to charities that were in desperate need because the donors already had donated these assets that could only be used for charitable purposes. If these donors didn’t have DAF accounts, many wouldn’t have been as generous.

Improved Relationships Between Advisors and Clients

DAF donors often want their own financial advisors to manage the assets in the DAF accounts, and when this is possible with certain DAF sponsors, the advisors and their clients are able to have meaningful conversations about not just the clients’ charitable goals but also their overall lifetime and legacy goals. This is also a wonderful opportunity for grandparents and parents to introduce their children to their trusted advisors so the family relationship can continue once they are no longer living. The charitable assets are often the stickiest assets and are one of the reasons advisors are able to retain and attract children of clients once the original clients are no longer living.

Because women are generally more philanthropic than men and have a longer life expectancy, engaging the spouses of clients and discussing charitable planning has helped many advisors retain them as clients after the death of the primary client. And because often, the spouses or widows are the ones who encourage and engage children in the family’s charitable activities, working with them can enable an advisor to attract the children as clients rather than seeing them utilize another advisor, largely because they can see how the advisor is interested in helping them achieve both their charitable and financial goals instead of only the latter.

Impact on Charities

The greatest benefit of helping clients establish DAF accounts is helping them achieve the greatest possible impact on charities. Many clients continue to provide support to charities as they’ve always done and don’t realize that they can do even more or do it differently. They may not understand that they could be bunching their donations to a DAF, contributing to a DAF in their last five to 10 years of working so those investments can grow tax-free and allow them to continue to make generous grants to charities from their DAF during retirement and creating a DAF so their heirs can keep supporting charities after they’re no longer living.

Simplify Giving

Nearly all DAF donors establish and fund accounts so they can make some grants soon, but most want these charitable vehicles to continue for some time. Some may have been frustrated by various aspects of their previous giving, whether it’s the cost or complexity of their family foundation or the responsibility of keeping track of all of the individual donations they made directly to many charities. DAFs have helped many families simplify their giving as they receive just one annual tax donation letter when they contribute to a DAF, make grants on the DAF sponsor’s giving portal at any time and day, and can donate a variety of stocks and other assets to just one charitable recipient than many.

In the end, clients, advisors and charities all benefit when DAF accounts are created. They allow a wider range of clients to experience the joy of giving and enable charities to receive more consistent and larger grants.      

Ken Nopar is the vice president and senior philanthropic advisor for the American Endowment Foundation (AEF) donor-advised fund.

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