Donor advised funds (DAFs) are charitable accounts that you can set up at brokerages like Vanguard, Fidelity or Schwab as well as through many other organizations. Whatever you contribute qualifies as a deduction subject to IRS rules and you can give the money to charities over a number of years.They are easy to set up, have minimal costs, centralize charitable giving, and simplify tax records.
You open an account (a lot like setting up a mutual fund account), fund it with at least the minimum dollar amount set by the specific DAF, choose how you want to invest the money and start making grants. Add more money when you choose to. Set up one-time gifts or recurring gifts. Grants must be to qualified charities. No friends or relatives or other people you want to help out. Keep the checkbook for those kinds of gifts.
When you make a contribution to your Donor Advised Fund, you get an immediate tax deduction. It can make sense to give larger contributions in years when you have higher taxable income. This is one of the few ways you can increase deductions over the standard tax deduction and be able to itemize.
Giving money away to qualified charities is easy. You typically go to the DAF website, choose Make a Grant and type in the organization you want to give money to. Up pops your charity, you put in how much you want to give, you can specify any instructions (like for a particular purpose or “in honor of” or “in memory of”), and when you want the gift to go to the charity.
Simplicity and Ease
The super wealthy used to set up private foundations (and of course many still do). But more often now, they will use a DAF or a combination of both types of charitable vehicles.
There are no legal fees to set up a DAF. The annual administrative fees are minimal. When you set up the account, you can contribute either cash or securities. Many people find it advantageous to contribute appreciated stock. You don’t pay capital gains tax to liquidate the stock. Neither does the DAF because it’s a charitable organization. It’s great for donating highly concentrated positions of stock.
When you contribute you get an immediate tax break. If you start with $35,000, you get a $35,000 tax deduction. That’s going to be higher than the standard deduction ($15,000 for single, $30,000 for married filing joint in 2025). You can give away all of that right away or give away smaller amounts over time. You could give $5,000 away for six years. You don’t get a tax deduction when the money goes to the charity because you got your tax break upfront.
For IRS purposes, you can only deduct up to 30% of Adjusted Gross Income (AGI) for capital gains securities or 60% for cash. Anything above that carries forward for the next five years. You may want to talk to your financial advisor or CPA to figure out a maximum deduction in any particular year. These rules can be complex, so it’s best to get some advice on larger gifts. And of course there are compelling reasons to give to others regardless of a tax deduction.
While the money is in the DAF, you can invest it. Any growth is tax-free. If you know you want to give it away soon, you may choose to put it in a money market within the DAF. Otherwise, you can choose from a variety of investment options within the plan. This means your DAF balance can go up or down, depending on market volatility.
Family Values
One of the greatest values you can pass on to your kids and grandkids is how to help others. It’s fun to get the whole family involved in how to make grants from the DAF. Imagine Thanksgiving where everybody gets to choose where to give $500 or $50 or whatever you envision you can give.
So maybe your five-year old granddaughter wants to give to help puppies. Or your teenage grandson wants to give to help space exploration. Or conservation. Or social justice. Or medical research. The skies (and your imagination) are the limit.
The point is you’ve opened up a family discussion about what you, as a family, value. It can be a celebration of how you share values or how you are different in seeing the world.
You can name successors for your DAF. After you (and your spouse) are gone, your kids (or whomever you name) can carry on the legacy of giving.
