How to Optimize Your Charitable Donations using a Donor Advised Fund

Let’s start with how a Donor Advised Fund (DAF) works…Step (1) you open an account up and make a contribution. If you itemize on your tax returns, that contribution can be a tax deduction on this year’s taxes. Step (2) pick your investment mix.  You pay the custodian a fee each year (this can range between .6% and 1.25%) Step (3) you get to choose where you donate your funds each year.  It is a pretty neat concept and allows for lots of strategic planning for both you and the charitable organization you wish to contribute to.

Main Reasons to Donate to a Donor Advised Fund (besides the impact of the Charity)

# 1 Bunching Deductions

If your main goal is to save money on your taxes, with the secondary goal be impacting your charity of choice (sometime in the future).  The Donor Advised Fund allows you group together the DAF contribution along with other itemize deductions.  If you are trying to qualify for a 199a deduction this could be a very creative strategy if you are charitably inclined.

# 2 Legacy

I view this as the cheaper version of having your own personal foundation without the requirements to distributing 5% per year.  If your DAF is big enough, this can provide additional political power, similar to that of the Clinton Foundation or Bill and Melinda Gates Foundation.  Donors can name individuals or charities as beneficiaries of their accounts or children of account holders can be named as successors, or added to accounts if they are over 18.

#3 Capital gains and Appreciated Securities

Capital gains disappear when donating that random 1000 shares of that AT&T stock that your great great grandfather passed down to each generation over the years.  It also, could be from your stock options/grants that have appreciated.  Whatever the case, why gift anything else?

# 4 You can fund a DAF now, and donate at a later time

I view this as quite the positive, most people know they want to impact the world, but just haven’t had time to do the research on all the different charities out there.  Why stop your personal planning, for charitable research, when you can do it on your own timeline.

The other consideration is, the type of impact you are trying to have on the charity.  Though smaller contributions help charities keep a float with current endeavors, what if that charity does not have a great endowment or investment philosophy in place?  Well, it would make sense to take the matters in your own hands and fund it for their future.

#5 Simplify the Giving

I have had clients in the past that would love to donate directly to the charity.  They would write checks out every year, wait for a receipt, then save that paperwork for tax filing purposes.  That is a lot of work.  And a good chance you would forget to add each charitable deduction to that file as the year would go on.

Now, with one large contribution to the DAF not only do you get immediate tax savings, but the gifting is all electronic.  No more headaches of tracking down receipts for your CPA or other advisors.  It streamlines the process and help simplify your financial life.

#6 Anonymous Giving

Everyone has different viewpoints on this, but I love to give anonymously.  When you cut a personal check, they know all your information.  With a DAF, you can include or exclude what information the recipient charity gets.  That is pretty neat if you ask me.  This would actually save the charity money by not sending you needed marketing material they could be sending to someone else to help further their mission.


If you are considering charitable gifting in your near future, and want to make an impact on your personal finances, as well at some point down the road for the charity or charities of your choice, then consider how your family can utilize a Donor Advised Fund to meet those needs.