Thinking about making a big impact with your charitable giving? Then it's time to get familiar with something called a Donor Advised Fund (DAF). Whether you're a seasoned giver or just starting out, a DAF can be a powerful—and tax-smart—way to support causes you care about.
What's a Donor Advised Fund, Exactly?
A Donor Advised Fund is like a charitable investment account. You contribute money (or even assets like stocks) to the fund, which is then managed by a third party—often a community foundation or a national charity like Fidelity Charitable or Schwab Charitable.
Once you make the donation, the money legally belongs to the fund and can't be taken back. But don't worry—you still get to recommend which IRS-qualified charities receive the money and when. As long as your request aligns with IRS rules (generally giving to a 501(c)(3) nonprofit), your donations will likely be honored.
Why Would You Use a DAF?
The biggest draw? Taxes.
Here's how it works:
- When you contribute to a DAF, you get an immediate tax deduction—even if the money isn't granted to a charity until later.
- If you donate appreciated assets (like stocks), you can avoid paying capital gains taxes.
- You can also reduce estate taxes if the DAF is part of your estate planning.
- Want to keep giving after you're gone? You can name the DAF in your will as a charitable bequest.
- Bonus: Some employers will match donations made to a DAF, so be sure to ask!
This setup gives you the flexibility to plan your giving over time, while still getting the upfront tax benefit.
Should You Open a DAF?
If you're planning to donate a large amount—either in one lump sum or over time—a DAF could be a great fit. But it's not one-size-fits-all. Talk to your tax professional and a CERTIFIED FINANCIAL PLANNER® to see if a DAF aligns with your financial goals and charitable vision.