You’ve had a significant liquidity event—an IPO, a company sale, a bonus year that exceeded expectations. Your accountant mentions optimizing charitable giving. Your wealth advisor suggests something called a donor advised fund. The term sounds technical, but the concept is straightforward: it’s a flexible, tax-efficient way to organize your philanthropy.

Donor advised funds have become the fastest-growing charitable vehicle in America, holding over $230 billion in assets.

What Is a Donor Advised Fund?

A donor advised fund (DAF) is a charitable giving account that allows you to contribute assets, receive an immediate tax deduction, and then recommend grants to charities over time. Think of it as a charitable savings account: you deposit funds, invest them for potential growth, and distribute them to causes you care about—on your own schedule.

The separation between contribution and distribution is the key innovation. You can take a tax deduction in a high-income year, then distribute grants thoughtfully over many years.

How Donor Advised Funds Work

Making Contributions

Cash — Deduction up to 60% of AGI.

Publicly Traded Securities — Double tax benefit: deduct full market value while avoiding capital gains tax on appreciation. Deduction limit: 30% of AGI.

Private Company Stock — Pre-IPO shares and LLC interests can be contributed with additional valuation steps.

Real Estate and Other Property — Possible with varying sponsor acceptance.

Investment and Growth

DAF assets can be invested for tax-free growth. Most sponsors offer investment options from conservative to equity-heavy portfolios.

Making Grants

Donors recommend grants to IRS-qualified 501(c)(3) charities. Most DAFs have minimum grant amounts ($50-$500). Grants can be anonymous or in your name. No deadline for distributing funds.

Donor Advised Fund Tax Benefits

Immediate Deduction

Contributions qualify for immediate charitable deductions, even before you decide which charities will benefit.

Capital Gains Avoidance

Contributing appreciated assets eliminates capital gains tax entirely. According to Fidelity Charitable research, contributing appreciated securities can increase giving capacity by up to 20%.

The Bunching Strategy

With the standard deduction now at $29,200 for married couples, bunching concentrates multiple years of giving into a single year, pushing total itemized deductions above the threshold.

Example: A couple normally gives $15,000 annually. Instead, they contribute $60,000 to a DAF in year one, itemize that year, then recommend grants of $15,000 annually over four years. Same total philanthropy, significant tax savings.

DAF vs. Private Foundation

Tax Deduction Limits — DAF: up to 60% AGI (cash). Foundation: 30% AGI (cash).

Administrative Requirements — Foundations require annual tax filings and 5% annual distribution. DAFs have no required distributions.

Privacy — Foundation returns are public. DAF grants can be anonymous.

Cost — DAF fees typically 0.6% annually. Foundations cost significantly more to establish and maintain.

General guidance: DAFs suit most donors below $5-10 million in philanthropic assets. Private foundations become more sensible for larger amounts or families wanting formal governance.

Choosing a DAF Sponsor

National Sponsors

Fidelity Charitable — Largest DAF sponsor with $50B+ in assets. No minimum, 0.60% annual fee.

Schwab Charitable — Competitive fees, strong Schwab integration.

Vanguard Charitable — Known for low costs and index-based options.

Community Foundations

Local expertise and connection to regional nonprofits. May include philanthropic advising.

Specialized Sponsors

Some focus on complex assets, impact investing, or faith-based giving.

Strategic Uses for DAFs

Liquidity Event Planning — Contribute appreciated shares before IPO or sale. Deduction offsets income; avoid capital gains entirely.

Year-End Tax Management — High-income years create opportunities for larger contributions.

Family Philanthropy — Involve family members as successor advisors to teach philanthropic values.

Estate Planning — Name DAFs as beneficiaries of retirement accounts or bequests.

The Bottom Line

Donor advised funds have earned their popularity by solving real problems: they simplify charitable giving, maximize tax efficiency, and create space for thoughtful philanthropy without foundation overhead. For most high-net-worth donors—especially those experiencing significant income events—DAFs represent the optimal giving structure.

For charitable families in the Hamptons and beyond—those who care about causes ranging from local land conservation to national arts institutions—DAFs provide the infrastructure to give strategically, efficiently, and on your own terms.

Related: What Is a Family Office? | How to Start a Private Foundation