What Is a Donor-Advised Fund (DAF)?

A Donor-Advised Fund (DAF) is a charitable giving account established at a public charity (often a community foundation or a financial institution’s charitable arm). You contribute assets to the fund, receive an immediate tax deduction, and then recommend grants to qualified nonprofits over time. 

Think of a DAF like a charitable savings account: you fund it now, invest it for potential growth, and give to charities when and how it makes sense for you. 

How a DAF Works (Step by Step) 

1. Open a DAF with a sponsoring organization (often quick and simple). 

2. Contribute assets, such as cash, stocks, or other appreciated investments. 

3. Receive a tax deduction in the year you make the contribution. 

4. Invest the funds (optional), allowing the account to potentially grow tax-free. 

5. Recommend grants to IRS-qualified public charities at any time. 

Key Benefits of a Donor-Advised Fund

Immediate Tax Benefits 

• Take a charitable tax deduction in the year you contribute—even if grants are made later. 

• Especially helpful in high-income years, business sales, bonuses, or liquidity events. 

Simplified Charitable Giving 

• One receipt for tax purposes, even if you give to multiple charities. 

• No need to track individual donations throughout the year. 

Flexible Timing 

• Separate tax planning from grantmaking decisions. 

• Support charities now, later, or across generations. 

Ability to Donate Appreciated Assets 

• Contribute stocks or other appreciated assets and often avoid capital gains tax. 

• Allows more dollars to go to charity rather than taxes. 

Potential for Tax-Free Growth 

• Funds can be invested and grow tax-free, increasing future charitable impact. 

Family and Legacy Giving 

• Involve children or heirs in philanthropic decisions. 

• Name successor advisors to continue charitable values over time. 

Privacy or Recognition—Your Choice 

• Make grants anonymously or publicly acknowledge your giving. 

DAFs and Estate Planning - Why DAFs Work in Estate Plans 

• Reduce estate tax exposure: Assets contributed to a DAF are removed from the taxable estate. 

• Efficient for retirement accounts: Naming a DAF as beneficiary of an IRA or other pretax plan directs funds to charity without income tax, preserving more after-tax assets for heirs. 

• Simplify charitable bequests: Name one DAF in your estate planning documents and recommend grants to many charities over time. 

• Legacy & governance: Appoint successor advisors (e.g., children) to continue grant making and capture family values. 

• Flexibility without amendments: Update grant recommendations outside your estate planning documents as priorities evolve. This saves time and money. Practical Example: IRA + DAF Strategy.

• Facts: Donor has a $1.2M IRA and $1.2M taxable brokerage; intends to give significantly to charity; heirs are in a high tax bracket. 

• Plan: Designate the DAF as 100% beneficiary of the IRA; leave the taxable brokerage to heirs. 

• Result: Charity receives the full IRA (no income tax at the DAF level); heirs avoid ordinary income from an inherited IRA and instead inherit step-up-eligible assets; family serves as successor advisors to recommend grants over time. 

• Variations: Split beneficiary designations (e.g., 50% IRA to DAF / 50% to heirs), lifetime giving coordinated with the estate plan, or pairing the DAF with a charitable remainder trust (CRT) for heir income plus a remainder to the DAF.beneficiary designations (e.g., 50% IRA to DAF / 50% to heirs), lifetime giving coordinated with the estate plan, or pairing the DAF with a charitable remainder trust (CRT) for  

  
  

What Can You Give to a DAF? 

• Cash 

• Publicly traded stock 

• Mutual funds and ETFs 

• In some cases:  

• Privately held business interests 

• Real estate 

• Other complex assets 

(Asset acceptance depends on the sponsoring organization.) 

What Kinds of Organizations Can Receive Grants? 

• IRS-qualified 501(c)(3) public charities, such as:  

  • Educational institutions 

  • Religious organizations 

  • Arts and cultural organizations 

  • Social service and humanitarian charities 

    
    

Important Things to Know: 

• Contributions to a DAF are irrevocable (assets permanently belong to the sponsoring charity). 

• Donors advise on grants, but final approval rests with the sponsoring organization. 

• DAFs cannot be used to satisfy personal pledges or provide direct personal benefit.

  
  

Who Might Consider a DAF? 

• Individuals or families who give regularly to charity 

• Donors with appreciated investments 

• People experiencing a high-income year 

• Those seeking a structured, long-term philanthropic plan 

• Families interested in building a charitable legacy 

  
  

A Donor-Advised Fund is a simple, flexible, and tax-efficient way to give to charity—

on your timeline, with your values, and with lasting impact. 

If you have any questions regarding A Donor-Advised Fund (DAF)

Please contact Davies Law Office at 425.440.3494 or office@dlolawgroup.com