How Donor-Advised Funds Can Benefit You and the Causes You Care About

A Donor-Advised Fund (DAF) is a financial vehicle that provides donors with an efficient, flexible way to contribute to charities of their choosing. DAFs also allow donors to maintain control over how and when donations are distributed. By contributing to a DAF, donors can experience tax benefits while .

Key Points:

• Definition: A DAF is an account set up to facilitate charitable giving, where donors make contributions, receive tax benefits, and direct grants to nonprofits of their choice.
• How it Works: After making contributions to a DAF, the funds are managed by a sponsoring organization (a financial institution, community foundation, or charity). While donors maintain control over grant recommendations, the sponsor handles administration.
• Structure: Donors retain the power to advise on grant distributions, but the sponsor approves grants and manages the account’s investments.

• Immediate Tax Deductions: Donors normally receive a tax deduction when they contribute to the DAF, reducing their taxable income for the year.
• Tax-Free Growth: Contributions to a DAF grow without incurring taxes, maximizing the potential for funds to appreciate before being granted to charities.
• Avoiding Capital Gains Tax: Donors can donate appreciated assets, such as stocks or real estate, directly to a DAF. This allows them to avoid paying capital gains tax and potentially give a larger gift.

• Centralized Giving: Instead of managing donations to various charities separately, DAFs allow you to centralize your charitable giving in one account, simplifying recordkeeping.
• Flexibility in Timing: Contributions can be made at any time, and donors can recommend grants to charities whenever they choose, providing more control over the timing of charitable disbursements.

• Donor Control: Donors can recommend grants to any IRS-qualified charity, allowing them to direct support to causes that align with their values.
• Legacy Giving: Donors can designate successors to manage the DAF after their passing, ensuring that their philanthropic impact continues.

• Minimal Paperwork: The DAF sponsor takes care of the administrative aspects, such as compliance, reporting, and due diligence, reducing the donor’s workload.
• Professional Management: DAFs typically offer professional investment management, so the funds are growing without the donor needing to manage investments personally.

• Costs and Fees: Some DAF sponsors charge fees for setting up and maintaining the fund. Donors should evaluate fees to determine whether the benefits outweigh the costs.
• DAF Restrictions: While DAFs offer flexibility, grants can only be made to IRS-qualified public charities (not individuals or political organizations). Understanding these limitations is essential before setting up a fund.
• Funding the DAF: Contributions can be made in various forms, including cash, securities, or real estate. Understanding the most tax-efficient way to fund a DAF is key to maximizing the benefits of your donation.

Donor-Advised Funds provide an excellent option for those looking to optimize their charitable giving while continuing their growth towards their financial growth. Not only does it allow the donor to offer their generosity and support to their communities, but it also provides financial benefits to both the donor and charity. DAFs help optimize the way individuals financially support their intended causes, allowing people to donate in a strategic and impactful way. For those seeking a effective way to give while preserving financial flexibility, a DAF is worth considering.

If you're interested in learning more or setting up a DAF, we invite you to schedule a consultation with our wealth management team to discuss how we can help you optimize your charitable impact.

Sources:

• Fidelity Charitable. "What is a donor-advised fund (DAF)?". (2025). Retrieved from https://www.fidelitycharitable.org/guidance/philanthropy/what-is-a-donor-advised-fund.html.
• Investopedia. "Donor-Advised Funds: The Benefits and Drawbacks". (December 5, 2023). Retrieved from https://www.investopedia.com/articles/managing-wealth/080216/donoradvised-funds-benefits-and-drawbacks.asp#:~:text=Disadvantages%20of%20DAFs,-Despite%20their%20relative&text=8%20DAFs%20often%20carry%20many,the%20real%20beneficiaries%20of%20DAFs.