Donor-advised funds (DAFs) are becoming an increasingly popular charitable giving tool for those looking to give more strategically and meaningfully. But despite their growing popularity, not everyone is aware how donor-advised funds work or whether they’re the right fit for their financial picture.
Here’s a high-level look at how DAFs function, how they compare to other giving strategies, and when it might make sense to incorporate one into your broader wealth plan.
The Basics of Donor-Advised Funds (DAFs)
A donor-advised fund is a charitable giving account. You contribute assets into the fund, which is managed and overseen by a third-party custodian, and recommend which qualifying charities should receive payouts over time. Once the assets are in the DAF, they must be used for charitable purposes (meaning you can’t pull them back out).
You can contribute a variety of assets to a DAF including cash, stock, property, crypto, private company stock, and other appreciated assets or investments.
How Does It Work?
Opening a DAF is generally a straightforward process. Many large financial institutions offer DAFs, and the minimum contribution is sometimes as low as $0. Once you’ve opened an account, you can contribute as frequently as you like, invest the assets within the fund to potentially grow your charitable dollars tax-free, and recommend grants at your own pace.
Why Not Just Donate Directly to Charity?
For many donors, the primary appeal of a DAF is its ability to align generosity with intentional planning. Here are three key benefits of a DAF, and why someone might choose to open and fund one rather than donate directly to charity:
Tax Benefits
Contributions to a DAF are eligible for an immediate tax deduction, which can be especially helpful in a high-income year or after a significant liquidity event.
As part of the 2025 One Big Beautiful Bill Act, taxpayers who opt for the standard deduction can now take an above-the-line charitable deduction of up to $1,000 (or $2,000 for joint filers). This can include your annual DAF contributions. If you do choose to itemize, just keep in mind your deductions begin once your donations exceed 0.5% of your adjusted gross income.
Flexibility
With a DAF, you don’t have to feel rushed into selecting a charity within a certain time limit—say, for example, you’re trying to get your charitable contributions in by the end of the year.
You can take your time, involve your family, and develop a thoughtful giving strategy over months (or even years).
Appreciated Assets
If you have appreciated assets, like stock or property, some smaller charities may not be set up to receive them as direct donations. Instead, you can donate assets directly to the DAF and request that grants be made to the charity instead.
Not only does this help support your charity of choice, but it’s also a more tax-advantaged way to donate. If you were to sell an appreciated asset outright, you’d likely be required to pay capital gains tax on the profits—even though you plan on donating the proceeds after the sale.
Is a DAF Right for You?
If you donate regularly to charity, anticipate a high-income year, or are interested in establishing a multigenerational giving plan, a DAF could be a beneficial tool to consider. As always, integrating charitable giving into your financial life should be an intentional decision. If you’re curious about how a donor-advised fund might support your values and financial goals, we’re here to help you explore your options.
Disclaimer: This content is for educational purposes only and should not be considered personalized investment advice. Individual circumstances vary, and executives should consult with qualified financial and tax professionals before making investment decisions.*