Donor-advised funds (DAFs) have become one of the fastest-growing vehicles in American philanthropy. Christian and community foundations have embraced them as tools for easier, more strategic, and more tax-efficient giving by donors. According to the National Philanthropic Trust Annual DAF Report, total assets in philanthropic DAFs exceed $326 billion.
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But recent controversies — including a lawsuit against DAF foundation WaterStone — suggest that donors should think carefully about how these funds work, how their intentions will be carried out, and whether they are the right tool for a Christian donor to consider.
One key issue for consideration is this: when donors put money into a donor-advised fund, who ultimately controls the gift?
The Rise of Christian Donor-Advised Funds
A donor-advised fund allows donors to contribute money or assets to a charitable account, receive an immediate tax deduction, and recommend grants to nonprofits over time.
Many large Christian philanthropic organizations now sponsor DAFs, including:
These organizations assist donors who want to give appreciated assets such as stock, business interests, or real estate while avoiding capital-gains taxes.
A donor need not make a large contribution—DAFs are available to givers of any level. According to The Signatry’s website, “The Signatry does not have a minimum contribution requirement for donor advised funds, designated funds, or charity funds. We believe donor advised funds should be a tool available to every person seeking to live generously.”
For many Christian families, the model provides an efficient way to fund long-term generosity.
They also provide philanthropic research and guidance to donors through philanthropic advising.
Al Mueller of Excellence in Giving explained that its advisors start by helping donors develop their mission statements, examine their giving history, and work with them as a matchmaker to find the best nonprofits in an area of interest to receive their donations.
DAFs offer tax advantages, convenience, and helpful giving advice, but donors need to understand an important characteristic of DAF giving: technically, the gift is complete when the money enters the DAF — even though it may not reach the intended Christian ministry recipient for months or years.
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Delayed Giving
While the donor receives tax recognition of the gift when it enters the DAF, the ministry impact may be delayed until it is delivered by the DAF administrator.
Mueller framed the issue of delayed giving this way: “Uncle Sam says you made a gift when you put money in a DAF, but I’m not sure God would say you made a gift.”
He added that, from a stewardship perspective, a gift is complete only when funds reach a working nonprofit. “For me, a gift means out the door and into the hands of an operating nonprofit.”
Additionally, critics argue the delayed delivery allows charitable dollars to accumulate indefinitely while nonprofits face immediate needs. Critics also point out that while private foundations must distribute at least 5% annually, DAFs have no similar rule.
Supporters assert that donor-advised funds often distribute significant amounts each year and encourage generosity by simplifying giving.
Some legislation has been proposed that would accelerate DAF charitable giving. The Accelerating Charitable Efforts (ACE) Act, proposed in 2021 by Senators Angus King and Chuck Grassley, would require some DAF funds to be distributed within a specific timeframe or face tax penalties. The bill did not pass.
Some advisors encourage donors to adopt voluntary payout practices — such as granting between 5-10% of the fund annually — to ensure charitable dollars reach ministries doing real work.
Donor Intent
Another issue of Christian stewardship to consider is who really controls the money once it is given to a DAF.
Legally speaking, once a contribution is made to a donor-advised fund, the sponsoring organization technically owns the assets.
The recent lawsuit against WaterStone highlights that donor recommendations may not be legally binding, making it especially important for donors to understand the governance and policies of the foundation sponsoring their fund.
In that lawsuit, Philip Peterson sued WaterStone claiming the DAF won’t communicate with him, revoked his account access, and has failed to make recommended charitable contributions from the family fund.
Donors can recommend grants, but the foundation retains final authority over distributions. In practice, most DAFs almost always follow donor recommendations.
As attorney Richard L. Fox said about the Peterson case, “Sponsors have strong market incentives to honor donor recommendations, and as a practical matter they do so. Indeed, the success of the DAF model depends on sponsors effectively yielding distribution decisions to donors in the ordinary case, notwithstanding the formal retention of exclusive legal control required for tax purposes.”
Several states, including Kansas, have passed laws that ensure donors have a clear legal option to enforce written agreements between donors and charities about how donations to endowments are used.
Donors often give with specific purposes in mind: supporting missions, funding Bible translation, or strengthening local churches. Unless those intentions are clearly documented and communicated to the DAF administrator, they may be difficult to enforce later.
Experts recommend several steps to protect donor intent when using a DAF:
- Choose a sponsor carefully. Not all foundations operate the same way. Donors should review governance policies, statement-of-faith requirements, and grant procedures.
- Document charitable priorities. A written giving plan or “statement of charitable intent” can help guide future advisors.
- Select successor advisors thoughtfully. Many funds pass to children or other family members who may have different philanthropic priorities.
- Maintain communication with the sponsoring foundation. A relationship with the DAF can often count for as much as legal documents in ensuring donor wishes are honored.
EDITOR’S NOTE: This analysis was prepared with the assistance of artificial intelligence tools that summarized and synthesized MinistryWatch coverage.
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