The Twenty Five Year DAF
Reflections of warehousing philanthropy
Yesterday I had breakfast with a financial advisor I respect and have known for over 30 years. He’s got a great reputation, works with high net worth clients, and is the kind of person other advisors point to as doing things the right way.
He described a standard move when a client has a large liquidity event, a business sale, an IPO, an inheritance: His firm creates a donor advised fund.
But then he shared the punchline: He works with the donor to schedule pre-determined distributions over a period of 25 years.
Not 5.
Not 10.
Twenty-bleeping-five.
And because the money goes into a DAF, the donor gets a tax deduction immediately, but the actual grants to IRL nonprofits trickle out over a quarter century. And for 25 years, that capital sits in an investment account instead of a program budget. And for 25 years, it generates fees for the advisor managing it.
So I asked him a direct question: Did he encourage his client go to any of their favorite organizations and ask what those organizations could do with that money now, or over 5 years, or over 10? Could they hire staff, expand a program, buy a building?
I also asked: Wouldn’t it be more fun for his client watch a program grow from scratch into something that family legacies are built upon?
And then: Surely there are creative projects out there within ambitions high impact organizations dying to put that money to work?
He looked at me like I had just mounted a donkey while wearing a top hat… and nothing else.
The question simply hadn't occurred to him but candidly he shared that my questions were not typically part of the conversation his firm has with clients.
The incentives are the problem
Most advisors who set up DAFs get paid on assets under management. The longer the money stays in the fund, the longer they collect a fee on it. A 25-year payout schedule isn't a donor's spontaneous preference. It's a product design that matches the advisor's revenue model.
Meanwhile the charitable tax deduction is claimed the day the gift goes into the DAF, not the day it reaches a nonprofit. The public treasury absorbs that cost immediately but public benefit shows up years or decades later, if the schedule holds at all.
DAFs now hold well over $350 billion in charitable assets nationally. Unlike private foundations, which must distribute at least 5% of assets each year or pay an excise tax, DAFs have no legal payout requirement. A sponsoring organization can hold a gift indefinitely and never be forced to move it.
Maybe it’s time to revive the ACE Act?
Yeah I know, we’ve been here before on this blog… but remember back in June 2021 when Angus King and Chuck Grassley introduced the Accelerating Charitable Efforts Act, known as ACE? A companion bill followed in the House from Reps. Ro Khanna, Chellie Pingree, Tom Reed, and Katie Porter. It was genuinely bipartisan.
The bill created two new categories of DAF. A qualified DAF, or QDAF, would cap a donor's advisory privileges at 15 years from the date of contribution. If the fund still held assets after 15 years, whatever remained would go to a preselected charitable beneficiary, and the sponsoring organization would owe a 50% excise tax on anything left undistributed.
Cute and tidy.
A second option let donors set up a 50-year fund instead, but with a catch: no charitable deduction until the money actually left the fund and reached a working charity. That reversed the current order, where the deduction comes first and the grant comes whenever.
Cute, tidy, and also quite reasonable.
The bill also created a qualified community foundation DAF category, which required a minimum annual payout of 5% of fund value, the same standard private foundations already meet.
There were exemptions built in. Community foundation DAFs under $1 million were excluded from the 15-year rule entirely, a concession meant to protect smaller, locally rooted funds from the same pressure aimed at commercial gift funds warehousing money for high net worth donors.
But you know what, it went nowhere
The ACE Act never got a vote because DAF sponsors argued the 15-year rule would create unwieldy reporting burdens. Community foundations, many of which run endowed DAFs with their own long payout horizons, pushed back hard, even with the carveout protecting smaller funds. And most nonprofit sector associations stayed quiet. Almost none campaigned for a bill that would have moved a large amount of money toward the organizations those associations represent.
(Note to reader: there is no doubt in my mind that this is the sort of platform that artificial intelligence was made to manage. I have no doubt that you could create individual bots to manage single donor advised funds for compliant and payout requirements. It is simply a question of political and technical will)
Today the bill is effectively dead and it seems that Angus King’s sole output as Senator from Maine has been to stump for his son’s failed run for Governor (Angus King III came in 5th out of 5).
Since 2021 ACE and similar DAF reform efforts haven’t been reintroduced with real momentum, and recent tax legislation has focused on deduction limits and AGI floors, not payout timing.
The warehousing problem the ACE Act targeted is still exactly the same today as it was in 2021. Only DAF assets under management (AUM) are over $200B higher.
What this means for the sector
I don't think the advisor I spoke with is doing anything illegal. I think he's doing something the system currently permits and financially rewards, which is a different problem and possibly a worse one.
Every year a dollar sits in a 25-year DAF instead of reaching a nonprofit is a year that nonprofit doesn't have it. Staff don't get hired. Programs don't scale. Waitlists don't shrink. The donor already took the deduction, the public already paid for it, and the only party still collecting on the arrangement is the asset manager.
If your organization works with major donors who use DAFs, ask the direct question I asked at breakfast.
Ask what the payout schedule actually is.
Ask why.
If the answer is a number like 25 years, ask whether that number came from the donor's stated wishes or from the advisor's fee structure.
Absent legislation, the only leverage the sector has is asking the question loudly and often enough that advisors have to answer it before the gift is structured, not after.
Because if the ACE act is dead, the only way to unlock DAF assets is for fundraisers like us to be really, really, really good at their jobs.