Trapped Charitable Dollars: Are DAFs Leaving Nonprofits Behind?

In recent years, Donor-Advised Funds (DAFs) have become a popular vehicle for charitable giving. While the intention behind DAFs is noble, they have also quietly become a controversial issue in the nonprofit world. With over $230 billion sitting in these funds, a significant amount of charitable dollars are locked up, not reaching the nonprofits that need them to effect change. Unfortunately, many DAF holders are unaware of this problem, and their donations remain unused, creating an unintended bottleneck in philanthropy.

What Are DAFs and Why Are They Sometimes Problematic?

DAFs allow individuals to contribute to a fund, receive an immediate tax deduction, and then disburse the money to charities over time. However, there’s no legal requirement for donors to distribute the funds within a specific timeframe—or at all, and if they are distributed, there is zero transparency on where they go. The result? Many DAFs grow without sending significant sums to charities, stifling the very causes donors set out to support.

Recent studies and data reveal that while charitable giving has increased, the bulk of donations are going into DAFs rather than directly to nonprofits. The unfortunate truth is that this shift means less money is being put to work where it’s most needed.

While charitable giving in the U.S. reached $557.16 billion in 2023, a significant portion of these donations—around $85.53 billion in 2022—went into DAFs rather than directly to nonprofits. Although DAF contributions continued to grow, a concerning amount of these funds, totaling $228.89 billion in assets in the year 2022, remained largely unused, as DAF payout rates dropped to 22.5%, leaving billions that could be supporting urgent causes​ (Business Wire) (NPTrust). DAFs now hold over $230 billion that is not currently benefiting nonprofits. In fact, a large portion of donations remains in these funds indefinitely, limiting the impact nonprofits can make on the ground.

This problem has not gone unnoticed. DAF Day, recently established to bring attention to the issue, encourages DAF holders to reflect on their giving practices. Nonprofits like Well Aware rely on active donations to sustain our critical work. For example, when Well Aware knows where and when future funds are arriving, our technical team is better able to plan our project work and capacity. The Global Water Crisis we aim to alleviate in East Africa requires ongoing support. When funds sit idle in DAFs, nonprofits are forced to stretch already limited resources, delaying or scaling back essential projects.

Now that I’m aware, what do I do?

If you hold a DAF, it’s time to take a closer look at your giving. Ensure that your intended charities are receiving the support they need. Your money can create a real, lasting impact if you commit to disbursing it to worthy causes instead of letting it sit unused. In honor of DAF Day, reflect on the power your donations hold—and make sure they’re put to good use.

At Well Aware, we are dedicated to sustainable water and sanitation solutions in East Africa. Our 100% success rate in water project implementation is proof of what timely, effective giving can achieve. Thank you to all of our generous and active donors who make great use of this tool. The power of your donations are truly life-changing.

We encourage you to partner with us or another cause close to your heart, ensuring that your contributions make a difference today. By engaging with your DAF and advocating for reforms, you can help unlock billions of dollars for charities working on the frontlines of change. Together, we can transform lives—one timely donation at a time.