Seven myths about donor-advised funds

Donor-advised funds (DAFs) are continuing to grow in popularity and use, but many nonprofits are still unaware of the opportunities these charitable vehicles offer. Sometimes that hesitation is rooted in misunderstandings, so to set the record straight, here are some common myths about DAFs to help your nonprofit feel confident in engaging with this powerful form of giving.

Myth #1: Only wealthy people use DAFs

Truth: DAFs may have once been primarily a tool for high-net-worth individuals, but that’s no longer the case. A national study on donor advised funds found that at the end of 2021, 49 percent of all DAFs had total assets of less than $50,000, while only 7 percent had balances of $1 million or more.

Why it matters: It’s possible a greater percentage of your donor base already has a DAF or is thinking about getting one. With low barriers to entry (considering that both Schwab Charitable and Fidelity Charitable offer options with no minimum initial contribution and a minimum grant of only $50), DAFs are becoming much more accessible. No matter the make-up of your donor base, you have a high chance to benefit from DAFs.

Myth #2: We won’t know who the donor is

Truth: While DAFs can be anonymous, many donors choose to share their names when recommending a grant. The sponsoring organization often includes the donor’s name and address with the grant letter. Like any other donation, it’s up to the donor to decide if they want their name made public or not.

Why it matters: DAFs are no more anonymous than traditional donation sources. Just as you do with donations collected online, have a process in place to acknowledge the donor if identified. A simple “thank you for recommending this gift from your DAF” can go a long way toward building long-term relationships.

Myth #3: DAFs are too complicated for our team to deal with

Truth: DAFs are actually one of the simplest and most efficient ways for nonprofits to receive charitable contributions, especially compared to handling non-cash assets, planned gifts or corporate matching programs. The administrative heavy-lifting is handled by the DAF sponsor, not your organization.

Here’s what the process looks like for your nonprofit:

1. A donor recommends a grant to your organization through their DAF provider’s online portal.
2. You receive a check or direct deposit from the DAF sponsor, typically within 5–10 business days.
3. A grant letter is included, often naming the donor and sometimes including a note (e.g., “Please apply where most needed”).
4. You deposit the funds and send an acknowledgment (if donor identity is known).

That’s it! Even better, your organization doesn’t need to issue a tax receipt. DAF sponsors are themselves 501(c)(3) organizations, meaning the donor receives their tax deduction when they contribute to the DAF rather than when the DAF sends your nonprofit the grant.

Why it matters: Believing that DAFs are too complicated could mean your organization is missing out on accessible, mission-ready funding. By avoiding or overlooking DAFs due to perceived complexity, organizations risk being left out of their donors’ giving plans and falling behind peers who have embraced DAFs. Once your team is familiar with the process, DAFs can become a low-effort, high-impact revenue stream that sustains your work for years to come.

Tip: List your Employer Identification Number (EIN), mailing address and legal name clearly on your website so that donors can recommend a DAF grant to your organization.

Myth #4: DAF money just sits in an account

Truth: While some DAFs do hold funds for multiple years, DAF assets are actively being granted out. According to the 2024 Donor-Advised Fund Report by the National Philanthropic Trust, the grant payout rate for DAFs was 23.9 percent in 2023.

Notably, the DAF payout rate has consistently exceeded 20 percent every year on record, demonstrating the active role DAFs play in philanthropic grant making.

Why it matters: Since these funds are already earmarked for charitable use, they are more likely to be dispersed. Compare this to private foundations who are only required to distribute at least 5 percent of their net investment assets annually for charitable purposes. Though the private foundation payout rate varies by organization, it’s been found that rates don’t go much above the minimum and hover between five and nine percent. This represents a much lower payout rate than the 20 percent average for DAFs. The more proactive and DAF-friendly your organization is, the more likely you are to receive a portion of that funding.

Myth #5: We can’t ask for DAF gifts—we must wait for the donor to decide

Truth: Just like with any other gift, you can (and should!) ask your supporters to consider recommending a grant from their DAF. It’s not off-limits or passé—it’s a normal part of engaging with donors who use different giving tools. In fact, DAFs provide so many benefits to the donor that they may be thankful you suggested it in the first place.

Why it matters: You may have heard the expression, “If you don’t ask, you don’t get,” and that can be said of DAFs. In a survey of around 500 nonprofits, it was found that of those who actively sought DAFs, 98 percent received at least one DAF gift in 2023.

Tip: Make DAFs an active priority for your nonprofit’s messaging strategy by updating the language in your marketing materials and your website. Consider including language like:

• "Already have a Donor-Advised Fund? Recommend a grant to [Name of nonprofit] today. Our EIN is [EIN Number].”
• “Have you heard about Donor-Advised Funds and how they can benefit you?”

You can even include DAF options in appeal letters or email footers.

Myth #6: DAFs don’t allow recurring or unrestricted gifts

Truth: DAFs allow both recurring and unrestricted gifts. Donors can recommend unrestricted gifts (i.e., gifts not tied to any specific program or project) when submitting a grant request from their DAF. In fact, many DAF sponsors even default to unrestricted giving unless the donor specifies otherwise. Likewise, DAFs allow recurring grants, but unlike monthly giving with a credit card (which the nonprofit controls), recurring DAF grants must be set up by the donor within their DAF portal.

Why it matters: Reliable and flexible funding sources make future planning and stability possible for nonprofits. Unrestricted gifts give organizations the freedom to allocate funds where they're needed most, while recurring grants provide predictable revenue streams. DAFs, like traditional donations, are a valuable source for providing these benefits.

Myth #7: DAFs don’t count as ‘real’ donor relationships

Truth: Behind every DAF is a real, value-driven person or family. Just because the gift comes through a sponsoring organization doesn’t mean there isn’t a passionate supporter behind it. In fact, DAF donors may be some of your most loyal donors as they’ve made philanthropy a priority.

What to do: Treat DAF donors with the same care you give any major supporter. Foster a relationship with them, report back frequently on the impact of their gifts and invite them into your community.

Donor-advised funds aren’t mysterious or unapproachable, they’re just another tool that donors use to support the causes they love. When nonprofits clear up the myths and get intentional about engaging DAF donors, they open the door to deeper relationships and more sustainable funding.

Your donors already use DAFs. The question is: Are you making it easy for them to utilize their DAFs to support your organization?