DAFs, the IRS, trust, gratitude and YOU
You may be very familiar with Donor Advised Funds or DAFs and they may be a big part of your giving program. Or, this may be a new opportunity for you!
A few years back, when I was embracing so many new technologies with my speaking work post covid, I didn’t feel I had the bandwidth to make some year-end gifts with the chance to really enjoy the giving, so I made a gift to a Donor Advised Fund with Thrivent. It let me take a tax-deduction that year. And, while I still made some year-end gifts, it was also sort of nice to feel I had money set aside for giving in the future.
And, I am part of a trend! Why DAFs?
- Smaller Donors Are Using DAFs
Thanks to platforms like Fidelity, Schwab, and Vanguard, you can open a DAF with as little as $5,000–$25,000, making this tool accessible to far more donors—not just the ultra-wealthy. - DAFs Now Hold Over $228 Billion in Assets
That’s a massive pool of already-committed philanthropic dollars just waiting to be recommended for grants. - Unlike private foundations, DAFs don’t have a required minimum payout—but they still gave away an average of 22.5% of assets in 2022. That’s more than 4x the 5% payout required of private foundations.
Just what is a DAF?
It’s a giving account that donors set up through a sponsoring organization—like Fidelity Charitable, Schwab, or a community foundation. The donor contributes to the DAF, gets the tax deduction at that time, and then recommends grants to nonprofit organizations over time. It’s like having a personal giving fund, with flexibility and convenience.
Inspiring generosity from DAFs.
DAFs often allow donors to give more because their funds are already set aside for philanthropy. Whatever reason a donor originally put money into a DAF, YOU have the wonderful opportunity to build or enhance a trusting relationship and excitement for how your mission can be JUST how to use that DAF money for good.
Thanking your DAFs Givers
Because the sponsoring organization is technically the legal donor (not the individual), there are IRS rules we need to follow when saying thank you. And yes—those rules apply even when we know the donor personally recommended the gift!
Here’s a thank-you that feels warm and personal—but actually breaks a few IRS rules:
Dear Alice,
Your generous $10,000 gift to support our scholarships will mean so much to young people struggling to continue their education. Thank you! Your continued commitment means the world to us, and we’re honored to recognize this as part of your multi-year pledge. We look forward to celebrating your impact at our upcoming Scholarship reception.With deep appreciation,
Executive Director
Looks professional, right? But it contains three common IRS compliance errors:
- Calling it a “gift” – A DAF grant isn’t a personal contribution from Alice. The DAF sponsor gave the funds, and Alice already received the tax deduction when funding the DAF.
- Mentioning a pledge – DAFs are not allowed to fulfill a legally binding pledge. Even implying that a grant is a pledge payment can get you into trouble.
- Tying the grant to event attendance – Any tangible benefit (like food, swag, or tickets) linked to a DAF grant can violate IRS rules. If you invite them to an event, make clear it’s not connected to the grant, or offer them the option to decline benefits.
Let’s try that thank-you again.
Dear Alice,
Your generous $10,000 grant from your donor-advised fund at Fidelity (or wherever the DAF lives) to support our scholarship program is deeply appreciated! Thank you for recommending this grant. Your generosity is helping young people continue their education—and your ongoing support means the world to us.
We’re truly grateful for the impact you make. If you’re able to join us, we look forward to celebrating the difference you help create at our upcoming Scholarship Reception.
With deep appreciation,
Executive Director
Please note, you NOT need to include the standard IRS language: “No goods or services were provided in exchange for this gift.” because the legal donor is the DAF sponsor, not the individual. The DAF sponsor already issued the tax receipt and handles IRS compliance, including that statement. You are simply acknowledging the grant, not receipting it.
What about event sponsorship or perks?
Yet, if your thank-you mentions event invitations, meals, gifts, or any perks, you can add a clarifying sentence like this: “This acknowledgment is provided for your records only. No goods or services were provided in exchange for this grant, and attendance at the Scholarship Reception is entirely optional and any event-related benefits have been waived.”
You can acknowledge the donor by name or business in event materials this way:
“This event is generously supported by The Smith Family Fund at Fidelity Charitable.”
But you cannot give them seats, meals, or sponsor benefits unless they pay separately (from personal funds) for the value of those items. If they decline all benefits, make sure it’s documented.
Still TRUE – this Marcyism!
See DAFs as a way to give your donors more opportunities to support you in addition to traditional gifts. Partner with them to understand how DAFs work. Remember that NONE OF THIS prevents your warm phone calls and personal visits saying THANK YOU and caring about them as mission partners and friends!
The TRUST you create that their giving or granting or attending or volunteering has the impact that brings them JOY is what makes this world the better place we are all working together to create!
Invest in Joy™
