Using a Donor-Advised Fund for Charitable Giving

Plenty of people give steadily to a handful of causes they care about. But if you're in a position to make a larger charitable commitment, it's worth looking beyond simple checkbook giving. A donor-advised fund, or DAF, is one option worth considering. It's a dedicated account, run by investment professionals, that you use to funnel money to charitable causes. Along with possible tax perks, it can also become a way to bring your family into the practice of giving.

DAFs have grown popular. As of fiscal year 2024, more than 3.59 million of these accounts exist across the country. Donors put over $90 billion into DAFs that year, and total assets held in these funds nationwide now top $327 billion, according to the Donor Advised Fund Research Collaborative.

• What counts as a donor-advised fund
• Weighing the upsides and downsides
• How the account actually functions
• Comparing a DAF to a private foundation

What counts as a donor-advised fund

A DAF is an account you open through a qualified public charity, known as the fund's "sponsoring organization." Once you contribute, the money technically belongs to that organization, not you. Still, you retain the ability to guide how it's invested and to recommend where it eventually goes.

Weighing the upsides and downsides

A DAF offers several advantages:

• an immediate tax benefit (more on this below)
• investment growth inside the account that isn't taxed, and
• an easy way to send grants out, especially through a larger sponsoring organization.

At the same time, a few features might feel like drawbacks to some donors:

• you give up a measure of control, since the sponsoring organization runs the account
• contributions can't be reversed — once the money is in, you can't reclaim it for personal use, and
• your investment choices may be narrower than you'd like.

The sponsoring organization will usually honor your grant suggestions, but it isn't obligated to. It has to be careful that every gift goes to a genuinely tax-exempt charity, since sending money elsewhere could trigger a steep penalty.

How the account actually functions

When you donate cash or other assets to your DAF, you make an irrevocable gift, and you get an immediate charitable tax deduction — but only if you itemize deductions on your federal tax return.

To open a DAF, you hand over cash, stock, real estate, or other assets to the sponsoring organization. That organization typically offers investment choices so your contribution can grow over time. From there, you recommend grants to any public charity approved by the IRS.

Plenty of large, well-known organizations sponsor DAFs, including the charitable divisions of major financial firms like Fidelity and Vanguard. Universities and hospitals run DAFs for donors who want to support their own programs. Community foundations, which direct grants to local causes, sponsor them too, along with independent nonprofits such as the National Philanthropic Trust.

The sponsoring organization manages your money for a fee. If you choose a financial-services sponsor, your investment menu will often be limited to that company's own funds — unless you're contributing a very large sum.

Is there a minimum amount to open one?

Each sponsor sets its own threshold. The National Philanthropic Trust requires at least $10,000, though many others — the Fidelity Charitable Giving Account, for instance — have no minimum at all.

What tax breaks come with a donor-advised fund?

Giving cash or other assets to your DAF is permanent — you can't undo the gift — but it also earns you an immediate charitable deduction, as long as you itemize on your federal return.

There are caps on how much you can deduct, though they only matter if you're giving a substantial amount: cash gifts can be deducted up to 60% of your adjusted gross income (AGI) for the year, while appreciated assets like securities or real estate top out at 30% of AGI. Keep in mind that a 2025 tax law change added both a floor and a ceiling affecting the value of itemized deductions, which could shrink what you actually deduct. Because these rules shift often, check current IRS guidance on charitable contribution deductions before you plan around a specific number.

Donating appreciated property — stock or real estate that's gone up in value — has an added perk: you sidestep capital gains tax on the appreciation and still deduct the asset's full fair market value.

What happens when the fund winds down?

You decide how long a DAF continues. You can name a charity to inherit whatever remains in the account after you die. Or, if you'd rather build a family habit of giving, you can designate someone to take over your advisory role — recommending investments and grants — once you're gone. And if you ever grow unhappy with how the sponsoring charity is managing things, you should be able to move the account elsewhere. Just confirm that portability is allowed before you sign on.

Comparing a DAF to a private foundation

People often weigh a donor-advised fund against setting up a private foundation, another vehicle families use to make large, tax-advantaged gifts over time. Here's how the two stack up on some key points:

Setup cost and effort. Opening a DAF doesn't require a lawyer — the sponsoring organization typically walks you through fairly simple paperwork. Starting a private foundation, by contrast, usually runs several thousand dollars in legal fees.

Ongoing management. Either structure involves a management fee for professional oversight, and the cost is usually similar between the two. But a private foundation has to file its own annual tax return, adding administrative work. With a DAF, the sponsoring organization handles tax filings for you.

Ease of use. With a major sponsoring charity, you can typically check your DAF balance and submit grant recommendations online.

Deduction limits. Cash gifts to a DAF can be deducted up to 60% of your AGI; the same gift to a private foundation is capped at 30%.

Tax on investment growth. Income earned inside a private foundation is subject to a 1.39% excise tax. Growth inside a DAF isn't taxed at all.

Privacy. A foundation's tax filings disclose your donation amounts publicly; DAF contributions stay private. You can even ask the sponsoring organization to send grants anonymously.

Payout requirements. Foundations must distribute at least 5% of assets each year. DAFs carry no such mandate, though many still give away well beyond that share.

Level of control. A foundation puts you fully in charge, including choosing your own board of directors. A DAF means ceding some decision-making to the sponsor and accepting a narrower set of investment options.

Charitable giving strategies like these interact with tax law that varies by situation and can change from year to year, so it's worth confirming current rules — and how they apply to your circumstances — before committing significant assets.