Donor-advised funds (DAFs) may be the greatest innovation in American philanthropy in the last generation. My wife and I have one, so I am aware of its virtues.
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DAFs solve real problems. They allow donors to contribute appreciated assets without triggering capital gains taxes. They simplify recordkeeping. They help families think strategically about generosity.
Those are real-world benefits. But there are also real-world problems that need to be fixed. Before we get to solutions, though, a little history is in order.
Donor-advised funds (DAFs) have been around for a while. The New York Community Trust established the first known donor-advised fund in 1931. It allowed donors to make an irrevocable charitable gift while retaining the privilege of recommending future grants to charities. The Tax Reform Act of 1969 overhauled the rules governing private foundations but did not specifically regulate donor-advised funds. This omission made DAFs increasingly attractive as an alternative to private foundations because they faced fewer restrictions and less administrative burden.
But the watershed moment came when Fidelity Investments launched the Fidelity Charitable Gift Fund in 1991. Fidelity applied the efficiency and accessibility of the mutual fund industry to charitable giving. Suddenly, middle- and upper-middle-income donors — not just the very wealthy — could establish DAFs with relatively modest contributions. This transformed the charitable landscape. Soon, Vanguard (1997) and Schwab (1999) followed Fidelity’s lead. These private, for-profit organizations applied marketing muscle in ways that private community foundations could not. The amount of money flowing into DAFs increased dramatically.
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The Pension Protection Act of 2006 was the first federal law to formally define donor-advised funds. The Act established legal rules for DAFs, prohibited certain self-dealing transactions, imposed excise taxes on prohibited benefits — but, and this is a critical point, did not require annual payouts.
The Tax Cuts and Jobs Act of 2017 accelerated DAF growth. This law, a major tax code overhaul by the Trump administration, increased the standard deduction for millions of Americans, but it also had the unintended consequence of reducing the number of people who itemize deductions from 30% to just 10%. That caused millions of Americans to “bunch” several years’ worth of charitable contributions into a single year to maximize tax deductions.
The result: in 1995, less than $5 billion was in donor-advised funds. By 2015, the number had grown significantly, to $78 billion. But the real growth came in the last decade, since the 2017 change in tax law. By 2024, more than $328 billion languished in DAF accounts.
Putting money to work
These funds should be put to work. Currently, far more money is flowing into DAFs than is flowing out. That needs to change. Every dollar sitting in a donor-advised fund has already generated a charitable tax deduction. Legally, the gift has been completed. Yet the ministry, food bank, rescue mission, pregnancy center, or Christian school that needs those resources may not receive them for years. Or decades.
Boston College law professor Ray Madoff is one of the nation’s leading critics of DAF policy. Madoff says the problem is not donor-advised funds themselves. It is the unlimited amount of time donors can leave money in them after receiving an immediate tax deduction.
Christians should be particularly concerned about this issue. Scripture never presents stewardship as merely the accumulation of resources for future generosity. Jesus had harsh words for the rich man who built a bigger storehouse to hold his wealth. God tells the man “You fool. This very night your life is demanded of you” (Luke 12:20). James warned believers against postponing obedience until tomorrow (James 4:13-17). Biblical stewardship emphasizes faithful deployment, not perpetual planning.
Tax policy should encourage the same principle — or at least not discourage it.
The good news is this problem is not all that difficult to solve, though it will take significant political will. Three reforms deserve serious consideration.
First, Congress should require that assets contributed to donor-advised funds be distributed within a reasonable period. I would suggest three to five years. But any limit — 10 or 15 years — would be better than no limit at all. Such a limit would preserve flexibility while ensuring that charitable dollars eventually accomplish charitable purposes.
Second, DAF sponsors should publish far more detailed information about inactive accounts, median payout rates, and how long assets remain before grants are recommended. Better transparency would reward sponsors that encourage active generosity while strengthening public trust.
Third, Christian donors should treat donor-advised funds as conduits rather than warehouses. This recommendation is particularly aimed at Christian foundations. The National Christian Foundation has seen its assets under management double in the past five years, to $6 billion. Waterstone, another large Christian foundation, now has nearly $1 billion under management, also doubling in the past five years. The Signatry has grown tenfold during that time, from $81 million in assets to more than $800 million. MinistryWatch tracks 29 Christian foundations, and almost all of them have experienced dramatic growth.
The question is not whether money has left our investment account. The question is whether it has reached the ministries God intends us to support. And in too many cases, the answer to that question is an emphatic “no.” But generosity delayed can become generosity diminished.
The church has immediate needs. So do Christian schools, pregnancy centers, missionaries, homeless shelters, and thousands of ministries quietly serving in difficult places. Charitable dollars help no one while the money sits in investment accounts — except for the highly paid executives who manage those accounts.
Donor-advised funds remain a valuable tool. But tools exist to accomplish work. They are not ends in themselves.
The measure of Christian stewardship has never been how much we reserve for charity.
It has always been how faithfully we put those resources to work.
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