Skip to main content

If you’ve been following our blog, you may know that private foundations and donor-advised funds (DAFs) are two of the most popular charitable giving vehicles for wealthy individuals. In fact, many philanthropists and their advisors strategically use both for philanthropic and financial synergy. And as we continue to expand our suite of solutions, we’re keeping a close eye on anything and everything that’s happening across the philanthropic, wealth and technology sectors. Today just so happens to be the first DAF Day, which is aimed at encouraging transparent giving and shining a positive light on the use of DAFs. Donors will be urged to give to their favorite charities from their charitable donor-advised funds. Think of it like GivingTuesday, but with more DAFs (and less leftover turkey).


While this seems like an excellent way for charities to remind donors of their importance and seek grants from donors’ DAFs that are already earmarked for charitable use, our experts at PG Calc see this as a golden opportunity for gift planning. Nonprofits have been looking for more ways to tap into this powerful giving vehicle and are beginning to prioritize DAF donations given its popularity among wealthy individuals, who provide their main source of funding. We asked Andrew Palmer, PG Calc’s Director of Marketing Services, to share his insights in this installment of our Planned Giving Series.

The Secret to Marketing for DAF Gifts: The Importance of Succession Planning
For donors looking to simplify their charitable giving and maximize tax benefits, donor-advised funds are among the fastest-growing charitable gift vehicles in the U.S. According to the National Philanthropic Trust, grants from DAFs to charitable organizations reached $52.16 billion in 2022, a 9% increase from 2021.

The benefits of DAFs include:

  • The convenience of having a centralized hub to simplify philanthropy.
  • One DAF contribution can fund multiple donations.
  • Increased giving potential as assets grow tax-free.
  • The flexibility to act quickly with charitable giving when natural disasters, humanitarian crises, or other emergencies occur.
  • Tax benefits, such as taking advantage of itemizing deductions by making one large gift that can then fund many future grants. This planning has become increasingly popular in an era when only 10% of households itemize their deductions.

A donor can make one large, tax-deductible, charitable contribution to the sponsoring charity (or financial services firm), and then take their time determining when and where to make donations to individual charities. Each DAF sponsor has its own policies for what assets it will accept, but many accept a wide range of assets, including cash, securities, real estate, tangible personal property, business interests, and more. Donors can take an immediate tax deduction for each contribution to their DAF, building up over time the funds available to support nonprofits they care about. This growth is also tax-free, allowing the donor to give more than they may have thought possible. The donor receives their tax deduction in the year they give to their DAF, regardless of when the DAF distributes the funds to charity. All DAF funds must be disbursed to public charities.

There are two simple ways to make a gift through a DAF:

1. While alive, the donor makes outright gifts by recommending grants to favored charities.

2. The donor creates a succession plan to go into effect after the donor passes away. If the donor does not provide a succession plan, then the DAF sponsor’s policies dictate what becomes of the funds.

It is the donor’s succession plan that we are interested in, since this can be a planned gift similar to a beneficiary designation. Many donors forget to ask themselves,

“What happens if I die unexpectedly and there is a balance in my DAF at the end of my lifetime? Where will that money go? Who decides how the money is used?”

The unfortunate truth is that once the DAF owner has passed, anything remaining in the DAF will become “orphaned” unless the DAF owner has specified successor advisors or how they want their assets to be distributed. And orphaned funds could be distributed to causes the donor would not have chosen to support.

The DAF sponsor is obliged to put orphaned funds to charitable purposes, but make no mistake, without a succession plan to guide it, the DAF sponsor will decide where the funds go, whether the sponsor is a financial services firm, like Fidelity, Charles Schwab, Vanguard, etc., a community foundation, or another charity. Exactly how orphaned funds are used depends upon policies and guidelines established by the DAF sponsor. DAF sponsors often maintain a list of favored charities to receive distributions.

Therefore, as planned giving marketers, we must educate our donors about the importance of establishing a succession plan so that they do not lose influence over what happens with their funds after they pass away.

Depending upon the DAF sponsor’s policies, a donor may be able to:

  • Select successor advisors (such as their adult children) who are empowered during their lifetimes to recommend grants to charitable organizations and make investment decisions about the DAF at their discretion.
  • Direct that final grants be distributed to charities to zero out the fund balance.
  • Allocate the remaining funds to specific areas of interest within the sponsoring charity or community foundation.

Donors should check with their DAF sponsor to learn about all available succession plan options.

Have a conversation with your donors about the ultimate fate of their donor-advised funds. Have they considered what will happen to their donor advised fund after they are gone? Does their donor-advised fund sponsor offer alternatives? Might they consider a succession plan including your organization?

Need help with your planned giving marketing?
Contact us today at 888-497-4970 or request a free demo.

Need help starting or managing a private foundation?
Schedule a call with us or reach us at 800-839-0054. Together, let’s #begiving.

Back to Blog