Key insights
- A donor-advised fund (DAF) is like a charitable savings account, offering you a powerful way to manage your giving while also potentially enjoying significant tax breaks.
- DAFs are great for wealthy individuals, those without heirs, or anyone who wants to donate appreciated assets without dealing with the hassle of a private foundation.
- While there are pros and cons, remember the money ultimately goes to charity, not your heirs.
- The One Big Beautiful Bill Act (OBBBA) will limit charitable contributions for many taxpayers in 2026 and future years. DAFs allow more of your future philanthropic gifts to be deductible if they are funded by the end of 2025.
Integrate charitable giving with smart tax and wealth planning.
Timing considerations
The One Big Beautiful Bill Act made a few tax-related changes that might affect how you give to charity, so if you’re planning to donate — especially through a DAF — act now before new limits take effect in 2026.
A donor-advised fund (DAF) allows you to make tax-deductible donations, receive immediate tax benefits, and recommend grants to charities over time.
Learn how it can offer flexibility, tax advantages, and ease of management — making it suitable for various donors with high net worth or highly appreciated assets.
What is a donor-advised fund?
A donor-advised fund is like a charitable savings account. You put money in and then suggest which charities should get the funds over time. It can be easier and less expensive to manage than a private foundation and may come with some nice tax breaks.
Think of a DAF as an agreement between a donor and a host organization where the donor advises on investment and grant distributions. The fund owns the assets and controls grants, though it typically follows donor recommendations. Contributions are tax deductible once the donor remits the funds to the DAF if not earmarked for specific grantees.
Though they can bear the donor's name, donor-advised funds are not operated as separate entities like private foundations. DAFs are merely accounts held by the fund.
How does a donor-advised fund work?
Compared to private foundations, DAFs are often less expensive and easier to set up while offering better tax benefits with fewer rules. Private foundations may give you more control, but they can come with more challenges.
A donor-advised fund typically operates as follows:
| Steps | Details |
|---|---|
| Sign letter of understanding | Donor signs with the fund |
| Establish account | Donor establishes and names the account |
| Recommend investment strategy | Donor recommends strategy |
| Make required minimum contributions | Assets may include cash, marketable securities, other types; minimums vary by fund, usually less than private foundations |
| Consider ongoing recommendations | Donor or designee makes non-binding recommendations on amount, timing, and charities for grants |
| Provide advice on investments | Donor can advise how contributions should be invested |
| Determine death provisions | Donor may suggest grants to charities named in will or trust, or designate family member(s) to recommend grants |
| Be aware of fund obligation | Fund not obligated to follow suggestions, but generally does |
| Provide preference on grant identification | Distributions identified as from donor's account or made anonymously at donor's request |
Donor-advised funds vs. private foundations
Both donor-advised funds and private foundations let you take a tax deduction now and decide later where to give. You can name either one after yourself, a family member, or someone you want to honor.
DAFs usually pool contributions from many donors (with separate accounts), while private foundations are typically funded by one source. Foundations offer full control over grants and investments, which appeals to some donors. DAFs, on the other hand, let you recommend — but not direct — grants and investments.
DAFs come with fewer legal restrictions and more favorable tax treatment. Since they’re considered gifts to a public charity, you may get a bigger deduction than with a private foundation. Plus, DAFs aren’t required to distribute a minimum amount each year, unlike foundations which must give away at least 5%.
DAFs also handle all the paperwork, reporting, and tax filings, saving potential time and money. And because they’re part of a larger organization, administrative costs are usually lower than those of a private foundation.
DAF options and tax deductions for donors
Endowed funds vs. non-endowed funds
Endowed funds distribute only income, keeping the principal invested forever to honor the donor’s legacy. Non-endowed funds allow donors to recommend grants from both principal and income, remaining flexible until the donor or their designee stops advising the fund.
Income taxes
Donors to DAFs may get an immediate income tax deduction if they itemize, limited to 60% of adjusted gross income for cash contributions or 30% for appreciated securities that have been held for more than a year. Deductions can carry forward up to five years. Unlike private foundations, donor-advised funds are exempt from excise taxes.
Federal gift and estate taxes
There are no federal gift tax consequences because of the charitable gift tax deduction, and federal estate tax liability is reduced with every contribution since donated funds are removed from the donor's taxable estate.
Consider financial planning opportunities arising from the One Big Beautiful Bill Act including valuable tax strategies around donor-advised funds, estate planning, and retirement planning. Watch our webinar.
Is a donor-advised fund right for you?
These donor profiles align especially well with the benefits and flexibility offered by donor-advised funds:
- High-net-worth individuals
- Individuals who have no children or ultimate beneficiaries
- Individuals who do not want to leave too much money to their children
- Individuals not actively involved in the ongoing operations of their charitable plan
- Individuals with highly appreciated assets
One family’s journey with tax-deductible donations
Harry and Wilma, longtime business owners, have shown their appreciation to customers by donating annually to local charities. Wanting to continue their family’s philanthropic legacy without the year-end stress of managing donations, they established a donor-advised fund.
The fund sold the shares tax-free, and the assets now grow without capital gains or estate taxes. It also handles all reporting, investments, and fiduciary duties, freeing Harry and Wilma to focus on their business.
They periodically recommend grants to their favorite charities, which the fund distributes in their names or their children’s. They've named their children as successor advisors to continue the legacy.
Weighing the pros and cons of donor-advised funds
A donor-advised fund can be a powerful tool for philanthropy, but it’s important to understand both its benefits and its limitations.
Advantages of donor-advised funds
- Lower contribution minimums (e.g., $10,000)
- Easy and low-cost setup and maintenance
- Some involvement in grantmaking
- Access to professional advice
- Immediate income tax deductions
- Potential reduction of capital gains, gift, and estate taxes
- No excise tax or payout requirements
Disadvantages of donor-advised funds
- Contributions are irrevocable
- Limited control over investments and grants
- Investment options may be restricted
- Grants may be geographically or mission-limited
- Assets donated do not pass to heirs
- Philanthropy duration may be limited
How CLA can help with financial planning
With CLA’s private client services, you get a complete view of your financial world. We go beyond simply developing a tax or investment plan. By reviewing your entire financial picture, we can help you implement a smarter, tax-efficient strategy to boost your finances and achieve more.
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