Donor-Advised Fund (DAF)
A philanthropic vehicle in which donors contribute assets, receive immediate tax deductions, and recommend grants over time. Popular for Israeli-American philanthropy.
Donor-Advised Fund (DAF) is a US philanthropic vehicle enabling donors to make tax-deductible contributions to a fund held by a sponsoring organization (community foundation, financial institution, or specialized DAF provider), while retaining advisory rights over grant recommendations.
Structure & Mechanics
A donor contributes appreciated assets (cash, securities, real estate) to a DAF and receives an immediate tax deduction for the full contribution amount. The fund invests the assets; capital gains and investment returns grow tax-free. The donor then recommends grants from the fund to qualified charities over time (months, years, or decades). The sponsoring organization maintains legal control and fiduciary responsibility but typically implements donor recommendations—making the arrangement functionally equivalent to the donor directing grants.
Tax Advantages & Motivations
DAFs are popular for: (1) Immediate tax deductions on contributions (enabling donors to donate appreciated securities without capital gains tax); (2) Charitable giving flexibility (donors can recommend grants flexibly, rather than committing to annual giving targets); (3) Estate planning (donors can fund DAFs with appreciated assets and have the fund deploy capital over generations); (4) Anonymity (donors can direct grants without public attribution).
Israeli & Diaspora Context
DAFs are used heavily by Israeli-American philanthropists to support Israeli causes. A donor living in the US can contribute to a US-based DAF (receiving US tax deductions), recommend grants to Israeli nonprofits, and leverage advantageous US tax treatment of Israeli charity contributions. Specialized DAF sponsors (e.g., Charities Aid Foundation, Fidelity Charitable) market to donors interested in Israel-focused philanthropy.
Regulatory & Ethical Considerations
Criticism: DAFs enable "charity arbitrage" (donors benefit from tax deductions but delay actual charitable distribution); some DAFs distribute very slowly or not at all, reducing charitable impact. US regulators have proposed minimum distribution requirements (e.g., 5–10% annually). Israeli tax authorities have scrutinized DAF-to-Israel transfers to prevent tax abuse.