AN Introduction to Donor Advised Funds: The Most Powerful Charitable Tool You’ve Never Heard Of

Tom Turnbull
2 hours ago
2 min read

Most of us think that only wealthy families can have a “charitable strategy.”

Not anymore.

A Donor Advised Fund (DAF) is a simple charitable giving account that lets you:

Make a contribution once
Take the full tax deduction immediately
Give to charities later — on your own timeline

Think of a DAF like setting up a charitable checking account.

How a DAF Works

Step 1: You contribute assets (cash, stock, IRA, even real estate).Step 2: You get an instant tax deduction in the year of the contribution.Step 3: You recommend grants to charities whenever you want — now or 10 years from now.

Your contribution can grow tax-free while you decide where to give.This allows you to give when you feel inspired to, not in a rush to meet a tax year deadline.

Why DAFs are Disruptive to the Charitable Giving Industry (In a Good Way)

For high-net-worth families:DAFs are a simpler, cheaper alternative to private foundations and charitable trusts — without the annual tax filings, administration headaches, or board meetings. I would have a hard time recommending setting up a charitable trust given the simplicity and cost effectiveness of a DAF.

For normal households:Many DAFs allow accounts to open for as little as $10,000 (National Philanthropic Trust).You can give like a foundation — but without being one. In this sense, DAFs democratize philanthropy. A middle class family easily create its own version of a charitable trust.

Why Did DAFs Suddenly Explode in Popularity?

After the 2018 tax law changes, most people stopped itemizing deductions — the standard deduction became so high that smaller donations ($250 here, $1,000 there) no longer reduced taxes.

DAFs solved that issue by allowing taxpayers to bundle donations in a single tax year.

Example:Instead of giving $1,000 every year to multiple charities, you could contribute $100,000 to a DAF once (especially in a high-income year), take the big tax deduction immediately, and then grant the funds out over time. Big deduction now. Thoughtful giving later.

What Types of Property Can you Contribute? (Another Area Where DAFs Shine)

Many people think you can only donate cash.

Actually, DAFs often accept:

Appreciated stock (avoid capital gains tax)
IRA assets (fantastic for legacy planning)
Real estate — even rental property
Privately held business interests (before a sale)

IRAs arguably most tax effect to contribute to a DAF and can be directly contributed to a DAF via a beneficiary designation completely outside of your trust.

Simply put, for estates that already plan to give to charity, a DAF can be the cleanest solution.