Boost the Impact of Your Charitable Giving with a Donor Advised Fund (DAF)

What is a Donor Advised Fund (DAF)?

A Donor Advised Fund (DAF) is a charitable giving vehicle that allows you to contribute to an account that’s operated by a 501(c)3 organization.

• Your contribution to the fund is treated as a charitable donation when it’s made. You receive an immediate tax deduction when you donate cash, securities, crypto, private company stock, real estate and more.
• As the donor, you retain advisory privileges regarding how your funds are invested and distributed. This includes when, how much, and to which organizations your funds are ultimately paid to.

Is a Donor Advised Fund (DAF) right for me?

You are most likely to benefit from a DAF if you:

• Own appreciated securities (ie stock, crypto, etc)
• Usually give at least $5,000 to charity each year, and/or
• Are interested in reducing your taxes by giving to charity

Still interested? Let’s dig deeper!

#1: You own appreciated assets (ie stock, crypto, etc)

If you contribute, appreciated, long term investments to a DAF, you receive a charitable deduction for the value of the assets contributed. This means you:

• Receive a tax deduction for the FMV of your contribution → this is the amount you would have donated if you sold the asset (for a gain) and contributed the cash
• Never pay tax on the gain!

#2 You usually give at least $5,000 to charity each year

While many are low, there are administrative costs to open and maintain a DAF. You should weigh the costs against your anticipated benefits with making a decision.

#3 You’re interested in reducing your taxes by giving to charity

This strategy is not right for someone interested in retaining control of the assets they donate to a DAF, since your rights will be limited to an advisory capacity. In short, you can’t take it back.

Tax Advantages and Strategies of Donor-Advised Funds

One of the biggest appeals of a donor-advised fund (DAF) is the flexibility it offers in maximizing tax benefits while giving back. Here are some of the most impactful strategies to consider:

#1 Immediate Tax Deduction
When you contribute cash, securities, or other assets to a DAF, you can claim an immediate charitable deduction in the year of the contribution—even if you recommend grants to charities years later.

#2 Avoid Capital Gains Tax
By donating long-term appreciated assets like stocks, real estate, or cryptocurrency, you can avoid paying capital gains tax on the appreciation. This allows you to give more to charity while lowering your overall tax bill.

#3 Tax-Free Growth
Assets inside a DAF can be invested for potential growth. Since investment earnings are tax-free, the value of your charitable dollars can grow over time, ultimately increasing your giving capacity.

#4 Deduction Limits and Carry-Forwards
DAFs allow you to deduct up to 60% of your adjusted gross income (AGI) for cash contributions and up to 30% of AGI for long-term appreciated assets. If you contribute more than the annual limit, unused deductions can be carried forward for up to five years.

#5 Strategic Timing (“Bunching” Donations)
DAFs let you contribute a large amount in high-income years or when you have a windfall (like a business sale or Roth conversion). This strategy, often called “lump-and-clump” or “bunching,” allows you to exceed the standard deduction threshold in one year and still spread out your charitable giving over time.

What Assets Can You Donate to a Donor-Advised Fund?

One of the advantages of a donor-advised fund (DAF) is that you can contribute much more than just cash. Many sponsoring organizations accept a wide variety of non-cash and complex assets, which can provide even greater tax benefits while making it easier to give.

#1 Publicly Traded Securities
Donating appreciated stocks, bonds, or mutual funds held for more than a year allows you to avoid capital gains tax and still receive a deduction for the fair market value.

#2 Restricted or Closely Held Stock
Some DAFs accept restricted stock, pre-IPO shares, and interests in private businesses. These require additional review and valuation, but they can unlock significant giving opportunities.

#3 Real Estate
Commercial or residential real estate, farmland, or even partial interests in property may be accepted. Donating real estate allows you to bypass capital gains tax and free yourself from ongoing ownership responsibilities.

#4 Alternative Assets
DAFs increasingly accept cryptocurrency, private equity, hedge fund interests, and other illiquid assets. These can be especially useful for entrepreneurs or investors looking for a tax-smart exit strategy.

#5 Cash and Simple Assets
Of course, cash, checks, or wire transfers are always accepted and provide immediate deductibility.

‍Donor-Advised Fund vs. Private Foundation

Donor-advised funds (DAFs) and private foundations are two of the most common vehicles for structured philanthropy. While they share the goal of supporting charitable giving, they differ significantly in setup, costs, tax treatment, and ongoing requirements.

#1 Startup and Administrative Costs

• Private Foundation: Requires legal formation, ongoing tax filings, and professional management. Startup costs can reach tens of thousands of dollars.
• DAF: Can be opened with as little as $5,000–$25,000 (depending on the sponsor) and has minimal administrative fees, usually under 1% of assets.

#2 Privacy

• Private Foundation: Annual filings are public, which means donations and grants are visible.
• DAF: Grants can be made anonymously, allowing donors to keep giving decisions private.

#3 Deduction Limits

• Private Foundation: Deduction limits are lower—30% of AGI for cash contributions, 20% for appreciated assets.
• DAF: More favorable—up to 60% of AGI for cash and 30% for appreciated assets.

#4 Ongoing Distribution Requirements

• Private Foundation: Must distribute at least 5% of assets annually and pay excise taxes on investment income.
• DAF: No required payout percentage, and assets grow tax-free until grants are made.

#5 Accessibility

• Private Foundation: Best suited for ultra-high-net-worth donors with millions to dedicate to philanthropy.
• DAF: Designed for individuals, families, or businesses who want an accessible, low-cost giving vehicle.

Estate Planning and Legacy Benefits

Donor-advised funds (DAFs) aren’t just a tool for charitable giving today—they can also play a role in long-term estate planning and creating a philanthropic legacy.

#1 Successor Designation
When you open a DAF, you can name individual successors (such as children or grandchildren) who will take over recommending grants after your lifetime. This allows your charitable values to carry forward for generations.

#2 Charitable Beneficiaries
Instead of appointing individuals, you can also name one or more charities to receive the remaining balance of your DAF. Some donors choose to split the fund into multiple new accounts, each supporting different causes.

#3 Reduce Estate Taxes
Assets contributed to a DAF are no longer part of your taxable estate. For families with significant assets, this can help reduce or eliminate estate tax liability.

#4 Retirement and Beneficiary Planning
You can name your DAF as a beneficiary of IRAs, trusts, or life insurance policies. This ensures that a portion of your wealth goes directly to charitable causes while simplifying the inheritance process for your heirs.

#5 Lasting Philanthropy
Many donors use DAFs to build a family giving tradition, involving children in grantmaking decisions and creating a long-term legacy of generosity.

Use Cases

Combine multiple years worth of giving in a single tax deduction

If you have an income event that put you in a higher tax bracket than usual, you can “stack” your annual charitable contributions.

For example, if you generally contribute $10,000 to charity each year:

• If you contribute $50,000 to a DAF in year 1, when you’re in the 37% tax bracket, and distribute $10K/year to charitable organizations, you will enjoy ~18K in tax savings over 5 years
• If you contribute the same $50K annually over 5 years, and you’re in the 24% tax bracket years 2-5, you will enjoy ~$13K in tax savings over 5 years
• In this example, stacking contributions would save ~$5K

This strategy also works if your total itemized deductions are close to the standard deduction, to ensure you maximize the tax incentives from your charitable giving.

Consolidate your record-keeping

If you give to multiple charities and have a hard time keeping track of donations/receipts, a DAF simplifies your giving and record-keeping: your only contribution for tax purposes is what was given to the DAF.

‍IRS Compliance and Risks

While donor-advised funds (DAFs) are one of the most flexible giving tools available, it’s important to understand the rules that govern them. Since a sponsoring public charity legally owns the assets in a DAF, the IRS has strict guidelines to ensure they’re used appropriately.

#1 Advisory vs. Legal Control
When you contribute to a DAF, you retain advisory privileges—you can recommend how funds are invested and where grants go. However, the sponsoring charity has final legal control over the assets.

#2 Eligible Charities
Grants can only be made to qualified 501(c)(3) public charities. DAFs cannot be used for personal benefit, political contributions, or non-charitable expenses (like event tickets, memberships, or tuition).

#3 IRS Scrutiny of Abuses
The IRS has flagged certain arrangements as “abusive” when DAFs are used to skirt tax rules—for example, when donors try to claim deductions without giving up control of the assets. Violations can result in:

• Disallowed deductions
• Excise taxes on both the donor and the sponsoring charity
• Revocation of the sponsoring organization’s tax-exempt status

#4 Recordkeeping & Transparency
The sponsoring organization handles compliance, reporting, and receipts—making DAFs easier for donors compared to private foundations. Still, donors should ensure their giving aligns with IRS rules to avoid penalties.

Limitations

When deciding what, and how much to contribute to a donor advised fund, you should keep in mind:

#1 The amount you can claim as a tax deduction may be limited, based on your adjusted gross income (AGI)

• Cash donations are eligible for a tax deduction of up to 60% of your AGI in a year, and
• Donations of appreciated assets are eligible for a tax deduction of up to 30% of your AGI

#2 Once your assets are in a donor advised fund, they can only be distributed to a public charity (not a family foundation)

This information is for educational purposes only and does not constitute financial advice. Consult a qualified professional before making any investment decisions.