What is a DAF?

At a high level, a Donor Advised Fund (DAF) is a charitable giving tool where the donor can donate cash, appreciated investments or other assets to the DAF, receive an immediate tax deduction, and then make donations (or “grants”) to qualifying charitable organizations (501c3).

In the past, most donors have made gifts primarily with checks, credit cards, or even through their estate planning via wills and trusts. While non-profits still appreciate donations made this way, a DAF is particularly attractive because they not only make it easy to manage your charitable goals, but the gift giving process for the receiving organization is also much more streamlined.

How they Work

Let’s use an example: say you have $5,000 in Nvidia stock you want to donate. You could sell it, pay capital gains tax, and gift the remainder. Or, you could donate the stock directly to a DAF, allowing you to deduct the full market value and avoid capital gains entirely. If the DAF sells the stock, there’s no tax impact to you. This makes donating appreciated assets a highly tax-efficient strategy—offering both a deduction and capital gains avoidance. Cash gifts to a DAF work similarly, just without the gains component.

Then, once your DAF is funded, you don’t have to turn around and make your donations immediately. The assets can be invested for future growth and future giving, so it’s a flexible way to build a personal charitable fund over time.

Gifts to charity are considered an itemized deduction, but with today’s high standard deduction, many donors aren’t itemizing. To maximize their tax benefits, some donors are using DAFs to “bunch” donations—making a large, one-time gift that exceeds the standard deduction threshold. This is especially useful in high-income years, offering a bigger immediate deduction while allowing you to distribute funds to nonprofits gradually over time.

Benefits to the Donor

There’s a misconception that DAFs are only ideal for the wealthiest donors, but the fact is that they can be a useful tool for people in various situations or who have different goals.

Here are the key benefits to donors:

1. Avoid realizing capital gains on appreciated assets.
2. Accumulate itemized deductions, especially during higher income years.
3. Proactively front-load charitable contributions to fund future giving.
4. Funds can be invested for future growth and giving.
5. Total flexibility on timing of donations from the DAF.
6. Benefit of seeing donations at work during your lifetime.
7. Create your own “personal foundation”, involve your family, make it fun.

Benefits to Receiving Organizations (Written by Kyle Lawrence of SVBC)

At the Shenandoah Valley Bicycle Coalition, we’ve seen firsthand how generosity fuels movement. Every new trail, repaired bike, and safer street exists because someone chose to give back to their community. Donor Advised Funds are one more way people can keep that generosity rolling. It’s simple for donors, efficient for nonprofits, and powerful for building better communities.

Here’s why DAFs work so well for organizations like ours:

1. Funds are ready to give.
   Once money is placed in a DAF, it’s already committed to charity, so it moves quickly and predictably when a donor recommends a grant.
2. Gifts are often larger and more intentional.
   Donors can contribute appreciated assets or combine multiple years of giving at once, resulting in more impactful grants that help us plan ahead and dream a little bigger.
3. Processing is simple.
   Because the donor already received their tax deduction when they contributed to their DAF, we don’t have to process that part. Our job is simply to thank them for their generosity and put their gift to work in the community.
4. Donors can give creatively.
   DAFs accept a wide range of assets like stock, crypto, or real estate, which opens new doors for charitable giving. We get to benefit from those channels without having to navigate the complexities of handling those assets directly.
5. Everyone benefits.
   Donors enjoy flexibility, simplicity, and tax advantages, while nonprofits like ours receive reliable, no-hassle funding that helps keep the work moving forward.

For us, that means more time building trails, improving streets, and helping neighbors move freely and confidently through the Valley.

Conclusion

At its core, people donate to organizations whose missions are important to them. Donor Advised Funds help donors stay true to this mindset while managing gifts strategically – both now and in the future. Developing a charitable giving strategy is a fulfilling exercise, and part of our role at Hess Financial is to help you craft your charitable goals in a way that doesn’t harm your own financial security. With smart planning, you can make an important impact on the organizations you care about while also lessening your personal tax headwinds.