What you should know about Donor Advised Funds

by Michael Gibney, CFP®, AIF®, Modera Wealth Management

I have been reviewing the benefits of Donor Advised Funds (DAFs) with clients as a way to get the most out of their charitable giving considering many are now seeing the impact the recent tax law change has had on the deductibility of donations.

I believe DAFs are a great tool to continue to give to charity and receive a deduction.

A Donor Advised Fund is an account set up by making an irrevocable donation to an account solely for the purpose of making charitable donations now and in the future.

If properly funded, a DAF benefits a person in three ways:

1) They get a tax deduction for the year the funds were donated to a DAF whether it is cash or appreciated securities, or something else, as long as their deductions are high enough to allow them to file Schedule A, Itemized Deductions.

2) They may be able to avoid capital gains tax by donating appreciated securities. For example, if a person bought 100 shares of apple at $50 a share, and it has increased to $170 a share – by donating these shares they receive a tax deduction in the year the donation was made of $17,000 (the appreciated amount), and they avoid the capital gains tax of $12,000!

3) Using the example above, the $17,000 grows tax-deferred in a DAF because the funds can be invested enabling the $17,000 to continue to appreciate.

Going forward, the client now has a $17,000 pool of money to make donations (potentially anonymously, if they so choose) in perpetuity, or until the money runs out.

The name “donor-advised” comes from the fact that future donations made from the DAF are directed by the person who established the fund. Grants can be made only to IRS-qualified public charities. These are organizations that are tax exempt under section 501(c)(3), and either:

  • are classified as public charities under section 509(a)(1), (a)(2) or (a)(3) of the Code; or
  • are classified as private operating foundations under section 4942(j)(3) of the Code

Eligible public charities include the full range of charitable organizations, including hospitals, scientific and medical research organizations, religious organizations and places of worship, environmental and educational organizations, museums and arts organizations, and any other organizations or institutions formed and operated for charitable purposes.

It is important to note that when a donation (in DAF parlance, a grant) is made from a DAF it does not give the account holder an additional deduction. The tax deduction is taken at inception, or with subsequent contributions to a DAF only.

Many custodians such as Vanguard, Fidelity and Charles Schwab have specific websites and funds dedicated to this. There are also specific DAFs, like the Jewish Communal Fund or other public charities.

The custodian establishing the fund may charge an annual fee and, because you can invest the money you have donated, and there may be additional fund fees, so it is important to do your homework before choosing one. There are other questions to ask for before proceeding, such as: what are the minimums for establishing the fund, what are minimums for additional contributions to the fund and what is the minimum grant amount allowed? (There are some DAFs that have minimum grants of $250, which may not work if you typically give $50 to the charity.)

As DAFs have grown in popularity, many not-for-profit organizations have added a link on their website giving donors the ability to make a donation directly from their DAF.

Please do not hesitate to call us if you would like to learn more about how you can continue to benefit from charitable donations. The tax law made it more difficult, but we can share strategies that make it possible.

Michael Gibney, CFP®, AIF® is a CERTIFIED FINANCIAL PLANNER® professional with Modera Wealth Management, LLC in Westwood, NJ. He may be reached at  or 201-768-4600.

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