What is a donor-advised fund?
CHARITABLE GIVING · TAX STRATEGY
A donor-advised fund (DAF) is created with an initial transfer of appreciated securities or cash into a special account — letting you report the gift in the current tax year, with the option to distribute to public charities in the future. Past and future gains on the investments in the DAF are tax-free.
Double tax-free: two key benefits for the donor
(1) A potential immediate tax deduction for the full value of the gift, plus (2) the benefit of including, tax-free, the unrealized gains of the appreciated gifted asset. The combination of these two can greatly improve the gifting power of your assets.
Common examples
Clients have used their DAF to "bunch" donations into one tax year for improved tax-efficiency, to diversify concentrated holdings while avoiding the long-term capital-gains tax hit of up to 37%+ in California or NYC, and to organize planned giving instead of reactively pulling out the checkbook or credit card.
It's also the easiest way to gift to a charity that is not set up to directly receive non-cash donations.
Long-term capital gains
The most efficient way to fund your DAF is by transferring securities with significant unrealized capital gains — deductible up to 30% of your AGI. This can be integrated with our tax-aware rebalancing — gifting appreciated lots is one of the levers in direct indexing. On a case-by-case basis, more complex assets can also be gifted: interests in appreciated leveraged real estate, for example, may not be out of the question, depending on the DAF.
Getting started, at any size
Smaller DAF accounts: DAF management is included with full-service wealth management and available à la carte with IMPACT Direct. There is no minimum size with many of the DAFs we work with. A not-so-daffy option for getting started is Daffy.org — being a fintech, they have some great features with a modern user experience, and they accept crypto. So far our experience has been flawless.
DAF accounts $250K+: We can integrate the investment management of your DAF as part of your overall portfolio management.
Fees
Donor-advised funds cover their expenses by charging an administrative fee. The annual admin fee is typically around 0.6%/year on the first $500K, declining significantly for larger accounts. This is in addition to any fund fees (expense ratios, etc.) and investment advisory fees, if any, depending on how the assets are managed inside the DAF account.
Schedule a call to discuss your situation with a fiduciary — to see if a DAF is your best fit, or if exploring a charitable trust or family foundation makes sense.