What are Donor Advised Funds? Meaning, figures, and examples

The fastest-growing financial instrument of recent years in the US is neither cryptocurrencies nor real estate, nor does it have anything to do with artificial intelligence. It is Donor Advised Funds (DAFs) – donor savings accounts offered by both asset managers and major non-profit organizations. In this blog article, we would like to explain how Donor-Advised Funds (DAFs) work and why their rapid rise in the US could also be of importance for donating behavior in Germany.

How do Donor Advised Funds work?

Their core function is simple: donors can deposit their donations into a DAF during the current tax year and deduct these donations from their taxes, even if they do not yet know which organizations they ultimately want to support. The exact allocation can take place later, while the balance is invested in the meantime.

According to the latest report by the National Philanthropic Trust, DAFs grew by 25.5% in 2022 alone to reach $234.06 billion in assets, and $55.95 billion in donations were distributed. For comparison: within a few years, DAFs already account for a fifth of all donations in the US – far more than the entire donation volume and all foundation funding in Germany combined.

Where does the popularity of Donor Advised Funds come from?

The high popularity of DAFs can be attributed to various factors:

Flexibility: DAFs are attractive to donors who do not want to commit to a long-term obligation immediately by setting up their own foundation. This allows for a step-by-step engagement with relatively low initial costs.

Adaptability: The step-by-step approach allows donors to develop and adjust their philanthropic interests and priorities over time, without having to make a final decision from the very beginning.

Digital management: DAFs meet the habits and preferences of a new generation of donors who grew up with digital technologies and online accounts. The ability to manage donations online and digitally fits perfectly with the modern lifestyle. Donors appreciate the convenience and the fast, uncomplicated way they can track and control their philanthropic activities.

Up-to-date information: Access to digital platforms not only facilitates the management of donations, but also makes it possible to stay informed about current developments and organizations that need their support.

Overall, DAFs offer a modern and flexible solution for donors who want to pursue their philanthropic goals in a way that suits their individual needs and lifestyles. This adaptability and the potential to bring about positive changes in the long term make them an increasingly popular option in the world of philanthropic engagement.

Are there Donor Advised Funds in Germany?

Hitherto, Donor Advised Funds have not been marketed in Germany. But it is almost certain that they will have the same success with a younger and digitally minded target group as they have had in the US. Based on the (albeit much lower) German donation volume, this would still translate into a growth potential of several billion euros per year in additional resources.

bcause basically offers nothing other than a Donor Advised Fund that can be set up within a few minutes. The logic here is the one described above: pay in, receive a donation receipt, and assign the money to any selected organization. 

The use cases are diverse: for example, if you have left the church and have set yourself a certain target amount for donations, you can easily implement this intention without having to have selected all the target organizations beforehand. Or if you have a particularly high income tax burden in a specific year, you can take full advantage of the tax benefit.

In addition, the commitment can be made visible to other users or even publicly as an online foundation and co-funded.

In contrast to classic Donor Advised Funds, which usually only manage and conservatively park deposited funds, bcause opens up new pathways: with bcause grow users can invest their balance in interest-bearing fixed-interest offers, while bcause impact offers access to a diversified investment portfolio with social and environmental impact. Furthermore, direct impact investments in verified funds and social enterprises are possible – representing an approach that intelligently combines donation management and impact-oriented asset investment.

👉🏼 Learn more about the investment options on bcause

The fintech revolution is democratizing one financial instrument after another. In the US, the philanthropy revolution is in full swing. Now it is Germany's turn.