When someone deposits money into a donor-advised fund, they immediately earn a charitable tax deduction; plus, they can transfer appreciable assets such as stock into the account without having to pay the capital gains tax that would normally accompany the sale of one’s earnings. For a fee, financial professionals reinvest the money to make it grow. Whenever clients feel like it—as in, many years later, if ever—they can “advise” the fund manager on how much and to which organizations their donations should go. The fund manager almost always obliges.
“DAFs are popular and fast-growing because of the tax benefits and the convenience,” Roger Colinvaux, a law professor at the Catholic University of America, told me. “Donors get the best tax benefits available, without having to fully give up control of their funds.”
But here’s the catch: When someone puts money or assets into a donor-advised fund, it’s no longer their money. They get the charitable tax deduction, since they’re actually donating to the donor-advised fund sponsor, a 501(c)(3) charity that then legally owns the money and has full discretion over where it goes. That also allows the donors to remain anonymous, both to the public and even to the IRS. So if someone wanted to fund, say, a white nationalist hate group but didn’t want the media or the government to catch wind of it, they’d use a donor-advised fund.