Title: Lawsuit over $21 million Donor-Advised Fund highlights risks of DAF giving
Publisher: CNBC
Author: Hayley Cuccinello
What the Article Says (and Its Limitations)
A lawsuit was filed by a family advising a Donor Advised Fund (DAF) claiming the DAF provider stopped honoring their grant recommendations and restricted access to account information.
Some readers might imply this is a broad indictment of the DAF model as a whole. The article states that once money goes in, donors lose all control and their wishes may be ignored. We disagree with this characterization as it is a simplification that does not fully reflect how Donor-Advised Funds are structured.
Here’s why:
1. DAFs Involve a Trade-Off Between Tax Benefit and Complete Control
A Donor-Advised Fund is a charitable giving vehicle where you contribute cash or assets to a sponsoring organization (DAF provider), receive an immediate tax deduction, and then advise how grants are made over time.
Once donated, the assets are legally owned and controlled by the charity (DAF provider), not the donor. This is a core IRS requirement central to the structure of Donor-Advised Funds.
To qualify for the tax deduction upon contribution to a DAF, the donor must relinquish legal control over the contributed assets. If a donor retained control, the contribution would not be tax-deductible under U.S. tax law.
Donors sometimes assume advisory privileges are equivalent to contractual control, this is not the case.
2. This Lawsuit Highlights a Rare Conflict, Not a Common Outcome
The lawsuit referenced in the article is an irregularity. Disputes between a DAF provider and the DAF advisors are not common. DAF providers generally follow the grant requests advised by their clients.
While policies vary by DAF provider, at UI Charitable, it is our mission to elevate and accelerate philanthropy. We simply can not accomplish this mission if we do not facilitate grants to charitable organizations. We honor grant recommendations from our clients as long as they are in line with IRS granting guidelines and tax laws.
3. The Bigger Context: Why DAF Popularity Persists
Despite occasional conflicts or criticisms, Donor-Advised Funds remain a significant force in U.S. philanthropy. Organizations tracked by the DAF Research Collaborative report billions of dollars moved into these accounts annually, and total assets nationwide continue to grow.
Their advantages include:
Immediate tax deduction
Ability to contribute appreciated or complex assets
Grantmaking timing flexibility
Lower administrative burden than private foundations
Often higher deductibility thresholds compared to private foundations
If you have questions about how the UI Charitable Donor-Advised Fund works or want to ensure a DAF is the appropriate charitable planning vehicle for you or your client, we’d welcome a conversation.
