What is a donor-advised fund?
A donor-advised fund (DAF) is a charitable giving account established with a sponsoring organization that allows individuals and families to support charitable causes they care about with tax efficiency. You can fund a DAF with a variety of assets, receive an immediate tax deduction if you itemize, invest the assets until you’re ready to donate them, and recommend grants to qualified charities over time, on your schedule—with no requirement to make distributions by a set deadline.
Think of it as a philanthropic savings account where the balance can be invested for growth.
Over the last 20 years, DAFs have gone from a specialist tool to a mainstream pillar of American giving. A donor-advised fund is a way to give that is:
- Personal. You can recommend grants to your favorite charities, wherever they are located and at the time of your choosing.
- Efficient. A DAF can be set up quickly without a lot of hoops to jump through—particularly when compared to the administrative burden and cost of a private foundation. In a DAF, you can easily recommend grants to multiple charities. The sponsoring organization where the fund is held takes care of the administrative tasks and compliance, so you can focus on your giving.
- Low-cost. Most sponsors have no account minimums and low minimum grant requirements, and typically charge a modest administration fee (approximately 0.5% to 1%).
- Flexible. You can add to the fund whenever you want, and most sponsoring organizations will accept nearly any asset, including cash, publicly traded securities, restricted stock, real estate, business interests, and other complex assets.
- Tax-smart. Using a DAF, you can bunch several years of planned giving into a single tax year—potentially pushing your deductions above the standard deduction and increasing your tax efficiency.
- Growth-oriented. Donors can recommend investment strategies, growing the charitable pool tax-free over time. At many sponsors, accounts of $100,000 or more can be professionally managed by your advisors.
Who is a DAF right for?
These powerful benefits make DAFs a natural fit for a range of donors, including:
- Donors who seek to support multiple charities and want one streamlined account
- Individuals who give to charity each year, but don’t give enough in a single year to claim the deduction
- Executives and business owners planning for a liquidity event, bonus year, or elevated taxable income
- Donors who want to allocate money to charity at a financially optimal time but haven’t yet chosen specific charities
- Individuals who prefer to give anonymously, as donor information does not need to be publicly disclosed on gifts made from a DAF
Key tax advantages of a DAF
- Appreciated assets: Contributing long-term appreciated assets avoids capital gains tax and maximizes the amount available for giving.
- Immediate deduction: If you itemize, you can deduct up to 60% of your adjusted gross income (AGI) for cash gifts, or 30% for appreciated assets, in the year you fund the DAF—not when grants are made.
- Tax-free growth: Invested assets in the DAF grow free of income and capital gains taxes, potentially increasing charitable impact over time.
- Income bunching: Donors can make a large contribution in a high-income year to exceed the standard deduction, then distribute grants over multiple years. This is particularly relevant because the One Big Beautiful Bill Act added a 0.5%-of-AGI floor on charitable deductions for itemizers, which could eat into your tax deduction every year if contributions aren’t bunched.1
Example tax savings using a bunching strategy
| Donor Profile (Over Three-Year Period) | Total Deduction Over Three Years Without DAF Bunching | Total Deduction Over Three Years With DAF Bunching |
|---|---|---|
| Annual income: $500,000 Annual giving: $20,000 Other itemized deductions: $0 Tax bracket: 32% Standard deduction: $32,200 MFJ | $96,600 $20,000 per year charitable contributions fall below the $32,200 standard deduction, so they add no tax benefit. | $124,400 Bunch three years of gifts in year one resulting in $60,000 itemized versus $32,200 standard deduction (before AGI-floor limits). Claim the standard deduction in the other two years. |
This example is for illustrative purposes only and does not represent actual results. Individuals should consult their tax advisor.
Important considerations
For donors considering a DAF, there are a few key structural features worth keeping in mind:
- Irrevocable: Contributions to a DAF are irrevocable—once assets are transferred, they are legally owned by the sponsoring organization and cannot be returned.
- Advisory-only: Grant recommendations are advisory—the sponsor retains legal authority, though in practice sponsors follow donor recommendations in the vast majority of cases.
- No mandatory payout: Unlike private foundations, there is no mandatory payout schedule, though sponsors may have inactivity policies.
How to get started
At Cerity Partners, your advisor can draw on specialists who focus on DAFs and tax-efficient philanthropic giving to help align the structure of your DAF correctly from the outset and incorporate your broader financial and philanthropic goals:
- Work with your advisor to establish a DAF with a sponsoring organization (such as Fidelity Charitable, DAFgiving360®, or National Philanthropic Trust).
- Complete a New Fund Worksheet covering investment preferences, fund naming, and any successor advisors you wish to designate.
- Contribute cash, securities, or other assets above the minimum initial contribution threshold to fund your DAF.
- Choose your investment pool, typically ranging from conservative income-oriented strategies to growth-oriented equity allocations.
- Recommend grants to qualified nonprofits whenever you’re ready; grants can be made in your fund’s name or anonymously.
If you have any questions, reach out to your Cerity Partners advisor or request an introduction today.
- Deduction amounts are subject to AGI limitations and depend on your individual circumstances. ↩︎
Please read important disclosures here.
