The Global Impact of Non-Profits and Donor Advised Funds

Gonzalo Law
16 min readNov 18, 2020


By Attorney Nouvelle L. Gonzalo and Ms. Eleanor E. LeBeau

Did you know that if all the nonprofits in the world were a country, they would have the 5th largest economy in the world? Right after Germany. That’s impressive!

In fact, in the U.S., one out of every 10 working Americans work in the nonprofit sector. This makes it the third-largest employment industry in the country, behind only retail and manufacturing. Given the significant role of nonprofits in the global stage and in the U.S., it’s important to consider the role of the fastest-growing areas to impact the nonprofit sector, Donor Advised funds (“DAFs”). DAFs started in the 1930s, yet have become one of the fastest-growing vehicles to generate revenue for nonprofits. Donor-advised funds have experienced rapid growth over the past 15 years. In 2007, National Philanthropic Trust (another leading donor-advised fund) reported that assets in DAFs totaled $39.8 billion in inflation-adjusted dollars. By 2018, that number had jumped over 200% to $121.42 billion. The increase in donor-advised funds continues to rise even during the COVID-19 pandemic. For those new to Donor-Advised funds, a few questions often arise:

1. Do donor-advised funds operate in the U.S.?

2. Do donor-advised funds have a role in the creation and operation of nonprofits in the U.S.?

3. Is there one country that is a leading example of donor-advised funds at the international level?


A brief response to each of those three questions is as follows. A detailed analysis is in the discussion section.

1. Yes, in the U.S., a donor-advised fund (DAF) is a philanthropic vehicle established as a nonprofit. The DAF is also referred to as a sponsoring organization. A nonprofit DAF must be an IRS-qualified 501(c)(3) organization and demonstrate the ability to carry out the purposes of an IRS public charity. A donor-advised fund exists when: a) the fund refers the contributions of a specific donor or donors to selected charities; b) the fund is owned and controlled by a sponsoring organization, and c) the donor has advisory privileges over the distribution of funds.

2. Yes, DAFs in the U.S. have given over $23.4 billion, in 2018, to other nonprofits. This represents 12.7% of individual charitable giving that year and it has continued to grow in 2019 and 2020. DAFs are philanthropy’s fastest-growing vehicle. IRS-qualified nonprofits should actively solicit these funds. DAFs are obligated to perform due diligence to determine whether a potential nonprofit charity is eligible to receive a DAF grant.

3. Yes. Donor-advised funds are philanthropy’s fastest-growing vehicle in the U.K as well. DAFs operate in the United Kingdom much as they do in the U.S. Beneficiaries of account funds must be government-approved charitable organizations and comply with Charity Commission and tax authority regulations.


I. How Donor Advised Funds Operate in the U.S.

Source: [i]

A. DAFs: Definition and How to Donate to One

In the U.S., a donor-advised fund (DAF) is a philanthropic vehicle established as a nonprofit. The DAF is also referred to as a sponsoring organization. A nonprofit DAF must be an IRS-qualified 501(c)(3) organization and demonstrate the ability to carry out the purposes of an IRS public charity. A donor-advised fund exists when: a) the fund refers the contributions of a specific donor or donors to selected charities; b) the fund is owned and controlled by a sponsoring organization, and c) the donor has advisory privileges over the distribution of funds.

If a potential donor or company wants to become involved, then the donor can open a DAF account with a particular DAF or sponsoring organization. The donor can contribute cash, stocks, or other assets.[ii] The donation is irrevocable. The donor receives an immediate tax deduction for the gift, even if assets are not distributed immediately. Over time, the donor recommends grants from the fund. The account is controlled by a nonprofit entity called a sponsoring organization. The sponsoring organization owns and manages the fund.[iii] Theoretically, the fund grows over time. A donor-advised fund is statutorily defined as a fund that is operated by a 501(c)(3) organization.[iv] The statutory definition of a sponsoring organization is discussed below.

There are three major types of donor-advised funds: commercial funds (also called national charities); community foundation funds; and single-issue funds. Commercial funds, managed by prominent U.S. financial investment firms, are the most widely recognized category of donor-advised funds. In that case, the financial firm establishes a nonprofit arm, and then the investment company manages donations made to the funds. One example is Fidelity Charitable, the nonprofit arm of Fidelity Investments. Individuals make donations to Fidelity Charitable, the sponsoring organization, and then decide where they would like to distribute funds. Meanwhile, Fidelity Investments manages the Fidelity Charitable funds. Another example is seen in Community Foundations, which are also DAFs and sponsoring organizations. These are grantmaking public charities, such as the Cleveland Foundation or the Community Foundation of North Central Florida. They distribute funds to many nonprofits in a specific geographic area. Single-issue DAFs are managed by sponsoring organizations that encourage people to give to one particular cause, such as a school or faith-based initiatives, women’s issues, or help to children.

B. Internal Revenue Service (IRS) Requirements in the U.S.

In the U.S, the IRS regulates nonprofits, including donor-advised funds. It also sets forth guidelines for DAFs. The Internal Revenue Service (IRS) defines a donor-advised fund:

1. A fund or account which is separately identified by reference to contributions of a donor or donors;

2. A fund or account which is owned and controlled by a sponsoring organization; and

3. A fund or account with respect to which a donor (or any person appointed or designated by such donor) has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts held in such a fund out account by reason of the one’s status as a donor. [v] (Emphases added.)

The IRS first developed an instructive guide to understanding donor-advised funds in 2008.[vi] The IRS regularly publishes updates to DAF regulations on its website.[vii] The IRS applies a three-prong test in order to determine whether a fund qualifies as a DAF: 1) the fund or account must refer contributions of specific donor or donors; 2) the fund must be owned and controlled by a sponsoring organization, and 3) the donor must have advisory privileges over the distribution of funds.[viii] All three prongs of the definition must be met in order for a fund to be defined as a donor-advised fund.

C. When DAFs Start in the U.S.?

DAFs are not a new concept in the U.S. Although donor-advised funds were created by community foundations in the 1930s, they were not widely promoted or publicized until the 1990s.[ix] In 1991, Fidelity Investments established The Gift Fund as an independent public charity, and other U.S. financial firms followed suit.[x] However, prior to the Pension Protection Act of 2006 (Pub. L. №109–208),[xi] the term “donor-advised fund” was not statutorily defined.[xii] Rather, a donor-advised fund was understood to include arrangements by which some charitable organizations established separate funds or accounts to receive contributions from donors.[xiii]

The Pension Protection Act (PPA) was designed to improve pension plan funding requirements for individuals and retirement plans such as 401(k) and IRA.[xiv] A provision of the PPA provided a statutory definition of “donor-advised fund”, now promulgated in IRC Sec. 4966(d)(2)(A). The PPA also specified new rules about the use of donor-advised funds and restricted the use of funds which: 1) make distributions to only a single identified organization or governmental entity; 2) benefit a single individual; 3) make travel, study, or similar grants to individuals — under certain circumstances; 4) attempt to influence legislation, a public election, or voter registration; or 5) support organizations that engage in discriminatory activities or practices.[xv] (Emphasis added.) The PPA also defines “sponsoring organization” as 1) a charitable organization, including domestic fraternal organizations, war veterans organizations, and cemetery companies; and 2) an organization that is not a private foundation (as defined in section 509(a)); and 3) an organization that maintains one or more donor-advised funds.[xvi] The 2008 IRS guide developed formal and more recent requirements. It also provided a checklist of questions to help determine whether a fund, a sponsoring organization, and the fund’s manager meet IRS requirements.[xvii]

II. Donor Advised Funds Are an Excellent Resource for 501(c)(3) Organizations.

A. Significant growth in DAFs during the past decade.

Over the past decade, the popularity of donor-advised funds has grown significantly.[xviii] Donor-advised funds held $121.42 billion in assets in 2018.[xix] That same year, individuals recommended DAF grants totaling $23.4 billion. Moreover, contributions to DAFs comprised 12.7% of individual giving in 2018, up from 4.4% in 2010 — a three-fold increase.[xx] DAFs are an important source of nonprofit revenue. Nonprofits in the U.S. should therefore implement strategies to attract new donors with DAF accounts who can choose them as grant recipients. Understanding how DAFs work and why donors choose DAFs will help nonprofits target and solicit DAF account holders.

Individuals may choose to use a DAF, rather than give directly to charities because it offers several benefits. One, a DAF allows ordinary people to grow their money over time and provide greater philanthropic contributions in the long run.[xxi] Two, the account holder receives an immediate tax deduction yet can defer decisions about how to allocate the funds.[xxii] Three, donors can deposit money in a DAF during years when it provides them with a greater tax benefit, and then donate the money over time.[xxiii] Also, the 2017 Tax Cuts and Jobs Act made several changes to tax law that discouraged taxpayers from making multiple (and smaller) direct charitable contributions. However, by contributing a larger lump sum to a DAF — which can then be distributed in smaller grants to multiple charities — an individual can still take advantage of tax deductions. Donor-advised funds are also recommended to individuals as a preferable alternative to starting a private foundation, which can require a large initial investment as high as $250,000 and is subject to stricter federal rules than a public charity.[xxiv]

B. Donor Advised Funds Must Conduct Due Diligence.

Ideally, before a DAF account holder makes a donation that it wants to give to a charity, the sponsoring organization is obligated to conduct due diligence no the selected nonprofit in order to follow federal guidelines. The designated charity, where a donor wants to make the funds, must be an IRS-qualified 501(c)(3) organization.[xxv] The sponsoring organization will also determine whether the potential grantee demonstrates the ability to carry out the purposes of the donation. The IRS provides sponsoring organizations with guidance on how to determine if a charity is a qualified 501(c)(3) organization to determine eligibility for a DAF donation.[xxvi] Donors and sponsoring organizations may rely on information from the IRS Tax Exempt Organization Search and the IRS Exempt Organizations Business Master File [xxvii] The Master Business File provides information about a nonprofit’s assets, activities, and NTEE codes. Therefore, if you have a nonprofit that is an IRS- qualified 501(c)(3) organization, and you can demonstrate the ability to carry out the purposes of donations, you may contact a Donor Advised Fund to see how you can become involved with them and receive donations.

C. International Giving Through DAFs.

Many U.S. donor-advised funds are set up to facilitate domestic charitable giving. However, some commercial DAFs, such as Schwab Charitable, are set up to provide grants to U.S. charities working abroad and international charities. To perform due diligence of international charities, Schwab screens charities to ensure that donations do not go to organizations subject to U.S. or United Nations sanctions.[xxviii] Schwab also determines whether the international organization meets the same requirements as a domestic 501 ©(3) charity under U.S. tax law and if it has the capacity to carry out the purposes of the donation.[xxix] If a U.S. sponsoring agency is not set up to facilitate grants to U.S. charities working abroad and international charities, the agency can work with an intermediary, such as the nonprofit Global Giving, which administers DAF funds to nonprofits abroad.

III. Although the U.K. has different philanthropic vehicles than the U.S., largely based on UK charity and tax laws, the Donor-Advised Fund model is similar in both countries and equally popular in the UK.

The UK is another region of the world where Donor Advised Funds have grown in popularity. For those unfamiliar with the UK charity guidelines, here is a brief overview.

A. Legal Framework of Charity Law in the U.K.

The United Kingdom (U.K.) is made up of England, Wales, Scotland, and Northern Ireland. In this discussion, however, we will refer specifically to the United Kingdom as it relates to England and Wales. Scotland and Northern Ireland have different charity laws than England and Wales. Charities in the United Kingdom are governed by the 2011 Charities Act.[xxx] The Charity Commission of England and Wales registers and regulates nonprofits in the UK. [xxxi] Charities also must comply with the regulations of Her Majesty’s Revenue and Customs (HRMC), the UK’s tax authority. Charities are also subject to laws applicable to their structures.[xxxii] Certain types of charities are regulated by company law, tax law, and charity law.

B. Definition of a Charity.

There is no legal definition of a nonprofit in the U.K. Rather, the U.K. uses the legal term charity

to describe organizations that exist for the public benefit and do share profits with members or trustees. Section 1 of the 2011 Charities Act defines a charity as an institution which both: 1) is established for charitable purposes only; and 2) falls under the control of the High Court in the exercise of its jurisdiction with respect to charities.[xxxiii] A charitable purpose is one which benefits the public. [xxxiv] Section 1 of the 2011 Charities Act provides an extensive list of charitable purposes. A charity’s purpose must meet two key requirements: 1) it must be beneficial in a way that is identifiable and capable of being proved by evidence where necessary, and 2) it must benefit the public in general, or a sufficient section of the public, and must not give rise to more than incidental private benefit.[xxxv] Generally, a charity with an annual income of more than €5,000 must register with the Charity Commission. [xxxvi]

C. Legal Compliance for UK Charities.

There are four common legal structures for charities in the UK: Charitable Company Limited by Guarantee (CCLG); Charitable Incorporated Organizations (CIO); Charitable Trusts; and Unincorporated Associations.[xxxvii] Most charities with an annual income of more than €5,000 must register with the Charity Commission. All charities need a governing document. To obtain tax relief for a charity, the charity must: 1) be established for charitable purposes; 2) be run by “fit and proper persons”; and 3) be registered with Her Majesty’s Revenue and Customs (HRMC).[xxxviii]

D. Philanthropic Landscape in the U.K.

Although the U.S. and U.K. are among the most charitable countries in the world, [xxxix] philanthropic vehicles in the U.K. are somewhat different than those in the U.S., primarily due to the U.K.’s tax laws. Generally, only U.K. taxpayers who have complicated tax affairs are legally required to file income tax returns, also called the Self-Assessment return.[xl] However, taxpayers who want to claim deductions for charitable giving are required to either file a return or contact the tax authorities to report the charitable donations.[xli] Also, unlike the U.S., which limits income tax deductions for donations to public charities, the U.K. does not have any limits. [xlii] This means there is a possibility in which an individual in the U.K. could offset 100 % of her taxable income through charitable giving. Wow!

Two primary giving vehicles in the U.K. are Gift Aid and Payroll Giving. In the U.S., a donor may claim 100% of the value of the donation as a tax deduction to reduce taxable income, up to certain limits. In the U.K., however, the Gift Aid tax incentive scheme splits the tax donation between the taxpayer and the charity.[xliii] This means that the charity receives the donation plus an additional percentage of the donation, based on the taxpayer’s tax rate. Employees in the U.K. may also participate in Payroll Giving. The donation is set up through employers and must be paid through an employee’s wages.[xliv] The employee receives automatic tax relief through this scheme, without having to file a tax return.

E. Donor-Advised Funds in the U.K.

Despite differences in some U.K. and U.S. charitable vehicles, the donor-advised fund model operates in the U.K. much like it does in the U.S. DAFs are also among the fastest-growing charitable vehicles in the U.K., as in the U.S.[xlv] Contributions in the U.K. to donor-advised funds were €512 million in 2018. That same year, U.K. donor-advised funds donated €312 million to qualified charities. The total assets in the U.K. donor-advised funds exceeded €1.5 billion. While these amounts appear to pale in comparison to U.S. DAF figures, one must keep in mind that the U.S. population is five times that of the U.K. (309 million and 63 million, respectively). Thus, the numbers in the U.K. are quite impressive. In the U.K., a donor makes an irrevocable contribution, with a wide range of assets, to a DAF managed by an “umbrella charity,” also called a charitable sponsor.[xlvi] As in the U.S., the charitable sponsor must perform due diligence to ensure that the potential grant recipient is a qualified charitable organization and can administer DAF funds to ensure compliance with HRMC and Charity Commission regulations.[xlvii]


The DAF model is similar in the U.S. and the U.K., both in regulation and administration. Recipients of DAF grant donations in both countries must be government-approved charities (U.K) or 501(c)(3) organizations (U.S.), demonstrate the ability to carry out the purposes of the grant, and comply with applicable regulations. Sponsoring organizations in both countries must conduct due diligence to ensure that grants are made to legally appropriate charities.

For additional questions or comments, feel free to contact our firm for a complimentary consult to set-up your Donor Advised Fund or nonprofit. You can email us at

Nouvelle Gonzalo is a U.S. and international corporate lawyer who works with companies across the globe. She is the managing attorney of Gonzalo Law LLC, a U.S. and international corporate law firm with offices in Florida and Ohio. In addition to the active practice of law, she has served as adjunct faculty at the University of Florida Levin College of Law where she has taught international corporate law for several years. She was recognized as a rising star by the national organization, Super Lawyers, in 2019 and 2020. Her practice areas include: international corporate law, intellectual property law, and nonprofit law.

Eleanor E. LeBeau, M.A. is a Paralegal at Gonzalo Law LLC. She is a former print journalist who worked for magazines and newspapers.


Short Videos

InFaith Community Foundation, “Donor Advised Funds” (1:18):

Fidelity Charitable, “Nonprofits and Donor Advised Funds” (4:01):

National Philanthropic Trust UK, How Donor-Advised Funds Work (in the UK):

Long Videos

Bloomerang, “Demystifying Donor Advised Funds” (long):

Venable LLP, “Donor Advised Funds — What’s the Fuss?” (long):


[i] DonorSearch, “How Do Donor Advised Funds Work?” Accessed September 22, 2020.

[ii] “Working with Donor-Advised Funds: The Basics,” Chronicle of Philanthropy, May 1, 2018. Accessed September 22, 2020.

[iii] Id.

[iv] Internal Revenue Service, “Donor Advised Funds.” Accessed September 23, 2020.

[v] IRC § 4966(d)(2)(A).

[vi] IRC § 4966 (d)(2) See Internal Revenue Service, “Donor-Advised Funds Guide Sheet Explanation,” July 31, 2008. Accessed September 22, 2020.

[vii] See Internal Revenue Service, “New Requirements for Donor-Advised Funds”. Accessed November 17, 2020.

[viii] Id at 8–18.

[ix] National Philanthropic Trust, “What Is a Donor-Advised Fund (DAF)?”,are%20philanthropy's%20fastest%2Dgrowing%20vehicles. Accessed November 17, 2020.

[x] Council on Foundations, “Donor Advised Fund Timeline: Milestones in the History of DAFs”. Accessed November 17, 2020.

[xi] The Pension Protection Act of 2006

[xii] Internal Revenue Service, “Donor-Advised Funds Guide Sheet Explanation.”

[xiii] Id.

[xiv] Council on Foundations, “Pension Protection Act”. Accessed September 23, 2020.

[xv] Internal Revenue Service, “Donor-Advised Funds Guide Sheet Explanation” at 3.

[xvi] Id.

[xvii] Id at 8–18.

[xviii] National Philanthropic Trust, “The 2019 DAF Report”. Accessed September 23, 2020.

[xix] Id.

[xx] Id.

[xxi] Claire Axelrad, J.D., “Strategies to Leverage Donor Advised Philanthropy,” AFP Global, February 28. 2019. Accessed November 17, 2020.

[xxii] Id.

[xxiii] Id.

[xxiv] National Philanthropic Trust, “Giving Vehicle Comparison: Foundations re powerful giving vehicles but can be costly and time-consuming to maintain”. . Accessed November 17, 2020.

[xxv] Internal Revenue Service, “Reliance Criteria for Sponsoring Foundations that Maintain Donor Advised Funds,” February 13, 2020. Accessed September 23, 2020.

[xxvi] Internal Revenue Service, “New Requirements for Donor Advised Funds.”

[xxvii] Internal Revenue Service, “Reliance Criteria for Sponsoring Foundations that Maintain Donor Advised Funds.

[xxviii] See

[xxix] Id.

[xxx] See

[xxxi] See

[xxxii] Anne-Marie Piper, Philip Reed, and Emma James, “Charitable Organisations in the UK: A brief overview”, February 1, 2020, Practical Law Country Q&A, Thomson Reuters.

[xxxiii] Id at 3.

[xxxiv] Id.

[xxxv] Id.

[xxxvi] See Accessed September 25, 2020.

[xxxvii] Anne-Marie Piper, Philip Reed, and Emma James, “Charitable Organisations in the UK at 4–9.


[xxxix] Charitable Aid Foundation, “World Giving Index 2018”. Accessed September 25, 2020. The Index ranked 146 countries on their charitable generosity. The United States was #4 on the list. The United Kingdom was # 6. (Indonesia and Australia were the top-ranked countries.)

[xl] National Philanthropic Trust, “Ten Things American Expats should know about charitable giving in the UK,” May 9, 2019. Accessed September 25, 2020.

[xli] Id.

[xlii] Id.

[xliii] Id.

[xliv] Her Majesty’s Revenue and Customs.

[xlv] National Philanthropic Trust UK, “2019 DAF Report.”

[xlvi] Id.

[xlvii] Id.



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