This is a relatively straight forward area of law if used with good intentions, but one that can get very complicated and sticky when used by anyone seeking to unduly benefit thereby, such as through tax evasion.
The idea with a donor advised fund is that it is operated by a 501c3 organization that has legal control over donations made into the fund (donations are also irrevocable), thus ensuring the donations will in fact be used for charitable purposes later on. The donor retains “advisory privileges,” but these are recommendations only, and are not legally binding. Those privileges are not clearly explained by the IRS. The major benefit to the donor is ease of use – they can donate into the fund and take an immediate tax deduction of up to 50% of their gross income without having to first identify what charity should actually get the funds.
The donor can then at leisure, identify charities to which to recommend that grants are made, and assuming a good fund manager and a proper recommendation, it would most likely be followed. Meanwhile, the money is invested, and the managing organization takes a fee from the investment profits.
The important thing to keep in mind for donor-advised funds is that they have been subject to significant misuse and corruption, a fact that has caused the IRS to become very suspicious of them and to impose new rules to help prevent further abuse of the funds.
Specifically, there is a 20% tax on disbursements not deemed proper by the IRS, and the directors agreeing to those disbursements may also be personally liable for 5% of the amount of the disbursements.