This insight will not only explain donor advised funds but also walk you through how to maximize your giving impact and tax savings. If you are reading this then chances are you care deeply about giving, and you also want to be strategic about giving. 

A Donor Advised Fund (DAF) is a powerful way to support causes you love and reduce your tax bill. Also, included in this insight is a case study of a client scenario, that will help you decide if this strategy fits into your overall financial plan.

All in all let’s cut through the complexity and make giving simple and efficient.

Donor Advised Fund

What Is a Donor Advised Fund (DAF)?

A Donor Advised Fund is a charitable investment account. You contribute to the charitable investment account any of the following assets:

• cash 
• stock 
• or even crypto

And get an immediate tax deduction. Then, over time, you recommend grants to charities you care about.

Think of it like your own family foundation, minus the hassle and legal paperwork. 

A Small Investment Provides Independent Donor Advised Fund Advice and Guidance 

A Small Investment, LLC is not affiliated with the organizations mentioned in this insight and we do not receive any compensation for any actions you may take with them.

This further supports our mission and vision to provide unbiased advice and guidance to our clients, and value to you the reader.

How Donor Advised Funds Work:

1. You open a DAF at a sponsoring organization (Fidelity Charitable, Schwab, National Philanthropic Trust).
2. Contribute cash or appreciated assets.
3. Take the deduction this year.
4. Make grants to qualified charities later. Whenever you’re ready.

This flexibility is why DAFs have become a go to tool for high-income earners and retirees alike.

Why High Earners Love Donor Advised Funds

Donor Advised Funds Case Study

Consider a couple in their mid 50s. They recently sold their business for $2,000,000, and retired from a financially rewarding career. 

They want to give back to their church and alma maters, and get a benefit from a tax perspective as well. Because of the large liquidity event for the sale of the business this family has an opportunity to make an impact on their community.

What can this family do

They can contribute an amount that they are comfortable with and that provides the greatest tax savings for the greatest good. By donating a combination of cash and appreciated stocks they are able to do the following:

• Reduce the amount of capital gains in their investment account as they re-allocate to a more conservative risk tolerance.
• Receive a tax deduction for the amount contributed to the donor advised fund.
• And create a legacy of giving that their kids will help carry on.

DAFs are not just generous, they’re smart financial planning tools.

Tax Benefits of a DAF:

• Immediate tax deduction for the full fair market value of assets.
• Avoid capital gains on appreciated stock or property.
• Bundle deductions in high income years to exceed the standard deduction, and maximize tax savings.

You can even coordinate your DAF giving with large one-time events like:

• Business or property sales
• Business owner distributions
• Inherited wealth
• Executive bonuses or RSU vesting

DAFs vs. Private Foundations: Why Simpler Is Often Better

A common question is: “Should I set up a family foundation instead?”

Establishing a Foundation sounds impressive, but comes with admin, legal costs, and required minimum distributions. On the other hand, a DAF offers:

• No setup costs
• No annual tax filings
• No minimum distributions

For the majority of high net worth individuals, a donor advised fund gets the job done with less friction.

Smart Giving: Assets to Donate to a Donor Advised Fund

You’re not limited to writing a check or transferring cash. Here are smart assets to contribute:

1. Appreciated Stock

Meaning your cost basis is low. If you sell the stock, you’ll pay taxes. On the other hand, you can donate the stock to a DAF, and avoid capital gains and deduct the full market value.

2. Private Business Interests

S-corp shares, LLCs, and even partial ownership can be donated, often before a liquidity event. This should be considered with your financial team of professionals to determine what action is best for you.

3. Real Estate

Yes, you can gift real estate, rental property, or land to a DAF. 

Learn more about how high earners should think about unexpected wealth events in this insight. Also, the giving ideas mentioned above should be considered with your complete financial picture in mind and with your qualified financial professional.

Use Your DAF to Teach the Next Generation

An additional benefit of a donor advised fund is to teach and assist the next generation(s), how to give wisely.

This can be done by hosting a “Giving Meeting” each year to discuss the donor advised fund, including assets, investing, and timing of upcoming grants to charity. Each family member can choose a nonprofit to support.

Over time, the family will learn how to:

• Evaluate charities
• Align giving with values
• Understand long term generosity

This has an impact far beyond taxes.

Combining a DAF With Other Financial Strategies

You don’t have to stop with a DAF. In fact, combining tools can maximize both impact and efficiency.

1. Qualified Charitable Distributions (QCDs)

For those 70½ or older, consider making direct IRA donations to your donor advised fund to reduce taxes paid on RMDs and/or taxes on income.

2. Roth Conversions + DAF Contributions

Roth conversions increase your taxable income. Offset this with a large DAF contribution in the same year.

This is an immense amount of information to consider in one reading, and you may not be sure how this all fits into your situation. Start with our Financial Foundation Checklist to get clarity on where you are now.

3. Business Owners: SEP IRA + DAF Combo

Fund your SEP IRA for retirement and your DAF for giving. Maximizing the potential to achieve dual long term goals.

See our actionable insight on 5 Reasons a SEP IRA Is Right for You.

What DAFs Don’t Do

To be fair, donor advised funds aren’t perfect.

• You can’t use grants for anything personal.
• Once the money is in the DAF, it must go to charity.
• DAFs don’t offer income to you, like a charitable remainder trust would.

But if your goal is pure giving with big tax benefits, a donor advised fund is hard to beat.

FAQs: Quick Answers About Donor-Advised Funds

Can I name my DAF?
Yes! You can call it The Johnson Family Giving Fund or anything else.

What’s the minimum to start a DAF?
Some providers start as low as $0. Others require $5,000 or more.

How do fees work?
Typically 0.60% to 1.00% annually on assets held in the fund. And the normal investment related fees would apply. For example, investing in an ETF that has an expense ratio of .15% will still apply. 

Can I invest my DAF funds?
Yes, many DAF sponsors offer investment options to grow your giving power.

Is a Donor Advised Fund Right for You?

A donor advised fund makes sense if:

• You’re in a high income year
• You own appreciated stock or assets
• You want to simplify your giving
• You’d like to leave a legacy of generosity

It might not be the best fit if:

• You want to receive a personal distribution from the assets in the fund
• You’re not charitably inclined

Want help deciding if a DAF fits into your larger financial picture? Book a consultation and let’s map it out together.

Ready to Be Generous and Strategic?

At A Small Investment, we help people and families like yours simplify wealth decisions and maximize generosity. We believe giving can be a joyful, strategic part of your plan and not an afterthought.

If you’re considering a donor advised fund, now is a great time to explore your options before year end.

Here’s what to do next:

•  Download our Financial Foundation Checklist
•  Book a 1-on-1 planning session
•  Subscribe to insights from A Small Investment

Because when you give with intention, you gain more than a tax break, you build a legacy.

Related Resources:

• How to Save Money on Taxes
• 529 Plan to Elevate Your Financial Legacy
• The Hidden Truth Behind Financial Advisor Fee Structures
• Before Your Next Million-Dollar Decision

Written by a Certified Financial Planner™ and personal CFO for high earners and high-net-worth families. Proudly helping people give, grow, and plan better through A Small Investment.