Should a Donor-Advised Fund Be Part of Your Estate Plan?
A donor-advised fund, or DAF, lets the donor reap tax benefits while also being able to direct how the money is distributed and invested.
Many individuals are interested in including charitable giving in their estate plans. This giving can take many forms. Oftentimes, a donor-advised fund can provide a very cost effective and easy way to give to charities, either during life or at death.
What is a donor-advised fund?
A donor-advised fund (DAF) is an account established with a Section 501(c)(3) charitable organization, known as a “sponsoring organization,” with the purpose of supporting charitable organizations over time. An individual, family or organization can contribute cash, securities, real estate or other assets to a DAF. The contribution to the DAF is considered a gift to charity for tax purposes.
Once the contribution has been made, the sponsoring organization has legal control over the assets, but the donor retains advisory privileges regarding how funds are distributed and how the assets are invested.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
DAFs can be established at most major financial institutions or with community foundations (charitable organizations that benefit specific communities).
How does a DAF work?
Donors can contribute to the DAF as frequently as they like and then recommend grants to their favorite charities whenever it makes sense for them, although some sponsoring organizations may require a minimum contribution and/or a minimum annual grant amount.
The gift to a DAF is irrevocable, and the funds cannot be returned to the donor or any other individual and only may be used for charitable purposes.
DAFs are the fastest-growing charitable giving vehicle in the U.S. because they are easy to establish and fund, and they could potentially have tremendous tax benefits. You can support almost any IRS-qualified public charity with grant recommendations from the DAF. The sponsoring organization is responsible for confirming that the charities qualify under the Internal Revenue Code.
Be mindful of the annual administrative fees, investment fees and maintenance fees when selecting the supporting organization to open your DAF.
What are the tax benefits of a DAF?
Income tax deduction. The donor can claim an immediate income tax deduction in the year the assets are contributed to the DAF, even if no assets are distributed from the DAF to a charity that year. The IRS does have some limitations on this deduction, depending on adjusted gross income (AGI):
- Deductions for gifts of cash cannot exceed 60% of AGI
- Deductions for gifts of securities or other appreciated assets cannot exceed 30% of AGI
- Deductions can be carried forward for up to five years
Investment growth is income tax-free. While an individual is deciding which charities to support, their donations can potentially grow in the DAF account, making more money available for giving. Any growth is income tax-free.
Reduced estate tax. Gifts made to a DAF will reduce the size of your taxable estate for estate tax purposes because any such gifts are subject to the unlimited charitable deduction.
How can I use a DAF in my estate plan?
You can contribute to your DAF during life, and you can also make a bequest in your will or revocable trust designating that the DAF receive either a specific dollar amount, a percentage or the remainder of your estate or trust after distributions. This is a very flexible way to fulfill your charitable goals without having to name specific charities in your estate planning documents.
If you choose to create a CRUT (charitable remainder unitrust) or CRAT (charitable remainder annuity trust), you might consider naming a DAF as the remainder beneficiary. In this way, you can take advantage of trust benefits and also provide flexibility for yourself and your heirs to change charitable beneficiaries over time.
You can also name your DAF as the beneficiary of a retirement account or life insurance policy.
Donors can select successor donor advisors (such as a surviving spouse or adult children) to recommend grants to charitable organizations from the DAF after the donor dies. In this way, a DAF can operate as a de facto family foundation by leaving a family legacy of giving and funds to enable the donor’s children to give to charity. If the DAF is established during life, the parents can also include the children in recommending charities that will receive distributions.
We recommend that you speak with your wealth planning advisers and your estate planning attorney to discuss if a DAF could be right for your family.
Tracy A. Craig is a partner and chair of Seder & Chandler's Trusts and Estates Group. She focuses her practice on estate planning, estate administration, prenuptial agreements, guardianships and conservatorships, elder law and charitable giving. She works with individuals in all areas of estate and gift tax planning, from testamentary estate planning and business succession planning to sophisticated lifetime leveraged gifting techniques, such as grantor retained annuity trusts (GRATs), intentionally defective grantor trusts, family limited liability companies and qualified personal residence trusts (QPRTs). Tracy serves in various fiduciary capacities, including trustee and personal representative (formerly known as executor). She also works with clients on issues facing elders.
Emily Parker Beekman is a Wealth Planning Strategist at Corient in Boston. She works with clients and their advisors to develop and implement their estate planning, wealth transfer and charitable planning strategies. Prior to entering the wealth management field, Emily spent 10 years as a practicing trusts and estates attorney, where she assisted clients and generations of families regarding estate planning, estate and gift taxes, probate law, probate avoidance, estate and trust administration, philanthropy and specialized in estate planning for disabled persons, guardianship and conservatorship matters and long-term-care planning and other elder law matters.
Related Content
- If You Give to Charity, ‘Bunching’ Could Save You Thousands
- An 'Equal' Inheritance for All the Kids Doesn't Always Work
- How to Prepare for Upcoming Estate Tax Law Changes
- How to Handle Estate Planning for Multigenerational Living Arrangements
- Estate Planning Amid Family Estrangement: Limiting the Fallout
-
How to Avoid the Financial Quicksand of Early Retirement LossesSequence of returns — experiencing losses early on — can quickly deplete your savings, highlighting the need for strategies that prioritize income stability.
-
How an Elder Law Attorney Can Help Protect Your Aging ParentsIf you are worried about older family members or friends whose financial judgment is raising red flags, help is out there — from an elder law attorney.
-
Q4 Post-Mortem From an Investment Adviser: Year of ResilienceFinancial pro Prem Patel shares his take on how markets performed in the fourth quarter of 2025, with an eye toward what investors should keep in mind for 2026.
-
This Is How Early Retirement Losses Can Dump You Into Financial Quicksand (Plus, Tips to Stay on Solid Ground)
Sequence of returns — experiencing losses early on — can quickly deplete your savings, highlighting the need for strategies that prioritize income stability.
-
How an Elder Law Attorney Can Help Protect Your Aging Parents From Financial Mistakes
If you are worried about older family members or friends whose financial judgment is raising red flags, help is out there — from an elder law attorney.
-
Q4 2025 Post-Mortem From an Investment Adviser: A Year of Resilience as Gold Shines and the U.S. Dollar Dives
Financial pro Prem Patel shares his take on how markets performed in the fourth quarter of 2025, with an eye toward what investors should keep in mind for 2026.
-
Is Your Emergency Fund Running Low? Here's How to Bulk It Back UpIf you're struggling right now, you're not alone. Here's how you can identify financial issues, implement a budget and prioritize rebuilding your emergency fund.
-
An Expert Guide to How All-Assets Planning Offers a Better RetirementAn "all-asset" strategy would integrate housing wealth and annuities with traditional investments to generate more income and liquid savings for retirees.
-
7 Tax Blunders to Avoid in Your First Year of Retirement, From a Seasoned Financial PlannerA business-as-usual approach to taxes in the first year of retirement can lead to silly trip-ups that erode your nest egg. Here are seven common goofs to avoid.
-
How to Plan for Social Security in 2026's Changing Landscape, From a Financial ProfessionalNot understanding how the upcoming changes in 2026 might affect you could put your financial security in retirement at risk. This is what you need to know.
-
6 Overlooked Areas That Can Make or Break Your Retirement, From a Retirement AdviserIf you're heading into retirement with scattered and uncertain plans, distilling them into these six areas can ensure you thrive in later life.
