If you give to charity regularly, you've probably wondered whether there's a better way to do it. Writing checks to different organizations throughout the year gets the job done, but it's not always the most tax-efficient approach. That's where a donor-advised fund, or DAF, can make a real difference.
A DAF is essentially a charitable giving account. You contribute money or other assets, take the tax deduction right away, and then recommend grants to your favorite charities over time. It's flexible, it's straightforward, and for high-income earners especially, it can be a powerful part of a broader financial plan.
Here's how it works and why it matters now more than ever.
How a Donor-Advised Fund Works
You open a DAF through a sponsoring organization. Once the account is open, you make a contribution. That contribution is irrevocable, meaning it cannot be returned to you, but it becomes immediately deductible. From that point on, you advise the sponsoring organization on where to direct grants.
What Can You Contribute?
Cash is the most common contribution, but most major DAF sponsors accept a broader range of assets, including:
- Appreciated stocks, mutual funds, and ETFs
- Private business interests (at some sponsors)
Donating appreciated assets can be particularly valuable. When you contribute stock held for more than a year directly to a DAF, you generally avoid capital gains tax on the appreciation and still receive a deduction for the full fair market value. That's often more tax-efficient than selling the shares, paying the capital gains tax, and donating what's left.
Contribute Now, Invest, and Give Later
Here's one of the most useful features of a DAF that often gets overlooked: the deduction and the giving don't have to happen at the same time.
When you contribute to a DAF, you receive the charitable deduction in the year you make the contribution, regardless of when the money actually reaches a charity. That separation is intentional and opens up meaningful planning opportunities.
Once assets are inside the account, they can be invested. Most major sponsors offer a range of investment options, from simple money market accounts to diversified stock and bond portfolios. The assets have the potential to grow while they sit in the account, which means the charities you eventually support could receive more than what you originally contributed.
Think of it this way: you donate $25,000 of appreciated stock in a high-income year, take the deduction when it's most valuable to you, and then let the account grow over the next five or ten years before distributing grants. The charities benefit from the growth. You captured the tax benefit when it mattered most.
This makes a DAF particularly useful for people who have a specific high-income year, such as a business sale, large bonus, or significant capital gains event, but want to give thoughtfully over time rather than rushing to identify charities before December 31. You meet the tax deadline with the contribution to the DAF. The charitable decisions can happen at your own pace.
There is no legal deadline requiring you to distribute assets from a DAF. You can hold funds in the account for as long as you'd like, grant money to charity on whatever schedule makes sense, and continue adding to the account over time.
The Tax Picture in 2026
Tax law around charitable giving changed meaningfully under the One Big Beautiful Bill Act (OBBBA), signed in 2025, with key provisions taking effect in 2026.
For itemizers, there is now a deduction floor. Starting in 2026, you can only deduct the portion of your charitable contributions that exceeds 0.5% of your adjusted gross income (AGI). For example, if your AGI is $300,000, the first $1,500 of charitable giving is no longer deductible. Amounts above that threshold are still deductible, subject to other limits.
High-income filers face a reduced benefit. For taxpayers in the top 37% federal bracket, the effective tax benefit of itemized deductions, including charitable deductions, is now capped at 35%. So instead of saving 37 cents per dollar given, you save 35 cents.
The 60% AGI limit on cash gifts was made permanent. Under the OBBBA, you can still deduct cash contributions to public charities, including DAFs, up to 60% of your AGI. For appreciated non-cash assets held more than one year, the limit is 30% of AGI. Amounts above these limits can be carried forward for up to five years.
Non-itemizers now get something, too. Beginning in 2026, taxpayers who take the standard deduction can claim an above-the-line charitable deduction of up to $1,000 for single filers and $2,000 for married couples filing jointly. Note that contributions to donor-advised funds do not qualify for this above-the-line deduction — it applies only to direct gifts to qualifying operating charities.
Why a DAF Can Still Make Sense in 2026
Despite the new floor and cap, DAFs remain useful. Here's why.
The Bunching Strategy
The new 0.5% AGI floor creates a compelling reason to "bunch" multiple years of giving into a single year. Instead of donating $10,000 annually for three years, you contribute $30,000 to your DAF in one year, capture the full deduction now, and then grant money out to your favorite charities over the next two or three years at whatever pace you choose.
You get the immediate tax benefit when it's largest. The charities you support still receive their gifts on a normal schedule. It's a clean way to align the timing of the tax deduction with the timing of your charitable intent.
Appreciated Securities: Still One of the Best Moves
Contributing appreciated stock to a DAF sidesteps capital gains tax entirely. For someone sitting on a large, concentrated position, or even a diversified portfolio with significant unrealized gains, this is often the most efficient way to fund charitable giving. You're effectively giving more to charity without spending more, because you're not losing a portion of the sale to taxes first.
A High-Income Year Is Often the Right Time
If you're expecting a large taxable event, such as a business sale, a deferred compensation payout, or significant capital gains distributions, that can be an ideal year to make a larger DAF contribution. The higher your income in a given year, the more valuable the deduction. The DAF lets you capture that deduction now and distribute the grants over time.
What Happens to Your DAF When You Die?
This is a question worth thinking through before you open an account, not after.
A donor-advised fund is not part of your probate estate, and it does not pass through your will. The assets belong to the sponsoring organization. What you control is who advises the account after you're gone.
Most major sponsors let you designate a successor advisor when you open the account, or at any point afterward. A successor can be an individual, such as a child or family member, who takes over the advising role and continues recommending grants to charities. They would have the same privileges you had, including the ability to recommend their own successor when the time comes. That means a DAF can theoretically continue across multiple generations, functioning somewhat like a family foundation but with far less administrative burden.
You can also name a specific charity, or multiple charities, as the successor. In that case, the remaining balance would be distributed directly to those organizations after your death, either in a lump sum or through a schedule of grants, depending on the sponsor's options.
If you die without naming a successor, the assets don't disappear, but you lose control over where they go. The sponsoring organization will direct the funds according to its own policies. For Fidelity Charitable, for example, the balance would be granted in accordance with its Trustees' Initiative if no successor is on file. The money still goes to charity, but it may not go where you intended.
A few additional things to know:
- If you name multiple individuals, most major sponsors will split the account into separate funds for each successor rather than requiring them to manage it jointly.
- Successor advisors can, in turn, name their own successors, allowing the fund to continue across generations if that's the intent.
- Assets contributed to a DAF through your estate may also provide estate tax benefits, in addition to any income tax benefits realized during your lifetime. Your estate attorney and tax advisor can help you think through how a DAF fits into your overall estate plan.
The bottom line is that a DAF can be a meaningful part of a charitable legacy, not just a tool for saving on taxes this year. But like most things in estate planning, it requires some intentional setup to work the way you intend.
What About Qualified Charitable Distributions?
It's worth knowing that a DAF and a Qualified Charitable Distribution (QCD) are different tools, and they are not interchangeable.
A QCD allows individuals age 70 1/2 or older to transfer money directly from an IRA to a qualified charity, up to $111,000 per person in 2026 (or $222,000 for married couples if each spouse has their own IRA). The transfer is excluded from taxable income entirely, which means it doesn't count toward your AGI at all. That's different from a deduction, and it's particularly powerful for retirees because it also counts toward satisfying your required minimum distribution (RMD).
Here's the key distinction: a QCD cannot be directed to a donor-advised fund. It must go directly to a qualified operating charity.
In 2026 specifically, QCDs have added appeal because they bypass both the new 0.5% AGI floor and the 35% cap that apply to itemized deductions. The tax savings happen through income exclusion, not a deduction, so those new limits simply don't apply.
A Few Things to Keep in Mind
Contributions are irrevocable. Once you transfer assets into a DAF, they belong to the sponsoring organization. You cannot take them back. This is a meaningful commitment worth thinking through before contributing.
Grants must go to qualified charities. You can recommend grants to 501(c)(3) organizations, but funds cannot be distributed to individuals, used to fulfill personal pledges, or directed to private foundations.
There is no deadline to grant the funds. Unlike some other charitable tools, a DAF does not require you to distribute assets by a specific date.
Is a Donor-Advised Fund Right for You?
A DAF tends to make the most sense for people who give meaningfully to charity each year, have appreciated assets to contribute, or face a high-income year where pulling forward a large deduction would be valuable. The ability to invest the account and let it grow before distributing makes it especially attractive for people who want to build up a larger charitable pool over time.
It may be less useful for someone who gives only small amounts annually, as the new 0.5% AGI floor may limit or eliminate the deduction benefit on modest gifts. And for retirees with IRA assets, a QCD may be the more efficient first step before considering a DAF at all.
The best approach usually depends on your specific income, tax situation, and the type of assets you're working with. If charitable giving is part of your financial picture, it's worth taking a closer look to make sure the strategy you're using is actually the most efficient one available to you. We're happy to walk through the options with you.
Sources
- IRS Publication 526 (2025), "Charitable Contributions" -- https://www.irs.gov/publications/p526
- Internal Revenue Code Section 170(f)(18) (donor-advised fund definition)
- Fidelity Charitable: "What is a Donor-Advised Fund?" -- https://www.fidelitycharitable.org/guidance/philanthropy/what-is-a-donor-advised-fund.html
- Fidelity Charitable: "Donor-Advised Funds and Estate Planning" -- https://www.fidelity.com/viewpoints/wealth-management/insights/donor-advised-funds
- Fidelity Charitable: "Successor Options Guide" -- https://www.fidelitycharitable.org/giving-account-guide/successor-options.html
- Fidelity Charitable: "One Big Beautiful Bill: Impact on Charitable Giving" -- https://www.fidelitycharitable.org/articles/obbb-tax-reform.html
- Schwab DAFgiving360: "What the One Big Beautiful Bill Means for Charitable Giving" -- https://www.dafgiving360.org/tax-law-changes
- Tax Foundation: "Changes to Charitable Giving Under the One Big Beautiful Bill Act" -- https://taxfoundation.org/blog/charitable-deduction-big-beautiful-bill/
- Bipartisan Policy Center: "The One Big Beautiful Bill Act's Changes to Charitable Deductions" -- https://bipartisanpolicy.org/explainer/the-one-big-beautiful-bill-acts-changes-to-charitable-deductions/
- Northern Trust: "Qualified Charitable Distributions from IRAs" -- https://www.northerntrust.com/united-states/institute/articles/qualified-charitable-distributions
- Fidelity: "Required Minimum Distributions and QCDs" -- https://www.fidelity.com/retirement-ira/required-minimum-distributions-qcds
- Mass General Giving: "Donor-Advised Fund Succession Planning: What Happens Next?" -- https://giving.massgeneral.org/stories/donor-advised-fund-succession-planning-what-happens-next
This material is for informational purposes only and does not constitute tax, legal, or estate planning advice. Tax laws are complex and individual situations vary. Please consult a qualified tax professional, CPA, or estate planning attorney regarding your specific circumstances before making charitable giving decisions.