When a donor advised fund makes sense for everyday donors

You don't need to be a millionaire to donate to charities like one. If you want charitable giving to be part of your financial life, a donor advised fund, or DAF, can provide a flexible and potentially tax-efficient way to support the causes and organizations you care about.

A primary benefit of DAFs is the ability to contribute now, receive an immediate tax benefit and make charitable decisions later. This flexibility can help you give more strategically without requiring you to set up and maintain a complex charitable structure.

What is a donor advised fund?

A donor advised fund is a charitable giving account established with a sponsoring 501(c)(3) organization. You contribute cash or other assets to the account and, if eligible, receive a charitable tax deduction for that year.

Although the sponsor legally controls the assets in the account, you retain an advisory role in recommending how the funds are invested and which eligible charities receive grants. You also aren't required to recommend grants immediately.

This ability to separate the timing of your charitable tax deduction from the timing of your charitable gifts is one of the most important features of a DAF.

How does a donor advised fund work?

The first step is opening and funding the account with a sponsoring organization. Depending on the sponsor, you may be able to start with a relatively modest amount. For example, you can open a First Citizens Donor Advised Fund with an initial contribution of $5,000.

Claiming potential tax benefits

If you itemize deductions on your tax return, you may be eligible to claim a charitable deduction in the year you contribute assets to your DAF.

The amount of the tax deduction depends in part on your income and the assets you contribute. While cash contributions may qualify for a deduction of up to 60% of adjusted gross income, or AGI, long-term appreciated assets, like stocks held for more than a year, are generally subject to a 30% limit. If your contributions exceed these annual limits, the excess may generally be carried forward for up to 5 years.

Keep in mind that beginning in 2026, charitable deductions for taxpayers who itemize are generally allowed only to the extent that contributions exceed 0.5% of AGI. Taxpayers in the highest tax bracket are also subject to a new limit on the tax benefit of all itemized deductions, including charitable contributions. This makes it especially important to consider your giving strategy in the context of your overall tax situation.

Giving grants on your terms

Once you've contributed to a DAF, you can recommend grants to qualified 501(c)(3) organizations at your discretion. Unlike a private foundation, a DAF generally doesn’t have an annual distribution requirement.

This means you could contribute to your DAF during a high-income year but take several years to decide which organizations you want to support. You could even allow the assets to remain invested with the goal of making a single, larger gift in the future.

When does a DAF make sense for everyday donors?

DAFs are sometimes associated with wealthy families making large charitable gifts. But whether a DAF makes sense for you has less to do with your wealth than with how and when you give. Consider these four scenarios.

1You want to bunch several years of charitable giving

For many households, annual charitable contributions alone may not be enough to make itemizing deductions on your tax return more advantageous than taking the standard deduction. A DAF gives you the ability to combine, or bunch, several years of planned donations into 1 tax year.

Let's say you typically give $3,000 a year to charity. Instead of donating $3,000 directly each year, you might contribute $9,000 to a DAF in a single year. You could then recommend grants to your favorite charities over the next 3 years.

This approach may help make itemizing worthwhile in that first year while maintaining a consistent giving schedule over time.

2You experience a higher-income year or liquidity event

A DAF can also be useful when you have an opportunity to make a larger charitable contribution. For example, you could receive a large bonus or stock compensation, realize a capital gain from highly appreciated investments, receive an inheritance or sell a business.

By contributing to a DAF during a higher-income year, you may be able to receive an immediate charitable deduction without rushing to decide which charities you want to support before the end of the year.

3You want to make giving a family activity

A DAF can also provide a simple way to involve your family in philanthropy without the expense and administrative responsibilities of creating a private foundation.

For example, a married couple can make charitable decisions together and involve their children in choosing which causes to support. Children can eventually be named as successor advisors, helping families to pass both their charitable assets and a legacy of giving to the next generation.

4You want to streamline charitable recordkeeping

If you regularly give to multiple organizations, keeping track of receipts and year-end contribution records can become cumbersome. A DAF can simplify this process by centralizing your charitable contributions in one account.

You can typically log in to your account and see how much you contributed, as well as the grants you've recommended throughout the year.

When does a donor advised fund not make sense?

A DAF isn't the right choice for every donor. First, if you take the standard deduction on your tax return, you won't be able to deduct contributions to a DAF—eliminating one of its primary tax benefits.

Second, there are administrative and investment fees associated with maintaining a DAF account. While these costs are typically lower than with other charitable structures, donating directly to these charities may be simpler and more cost-effective if you give small amounts or support only one or two organizations each year.

There are other ways to give if a DAF doesn’t fit your needs, including direct gifts of cash or appreciated securities and other charitable giving strategies.

How to open and fund a DAF

Opening a DAF can be a straightforward process, with many sponsors offering online applications.

You can fund a DAF with cash or publicly traded securities, and some sponsoring organizations may accept other types of assets. However, more complex assets can require additional review, so it's important to work with your financial and tax advisors before making this type of contribution.

Contributing appreciated securities to a DAF can be particularly useful when you want to support a charity that isn't equipped to accept these assets directly. The sponsoring organization can accept and liquidate the securities, allowing you to recommend a cash grant to the charity.

It's also important to note that contributions to a DAF are irrevocable. Once assets have been contributed, they must ultimately be used for charitable purposes.

How are DAF assets invested?

You choose how the funds in your DAF account are invested based on the options offered by the sponsoring organization.

For example, First Citizens offers six investment options ranging from conservative to more aggressive strategies. Rather than selecting individual securities, you select an investment option based on your goals, risk tolerance and giving timeline.

The bottom line

For donors who already give or want to give regularly, opening a DAF can provide a more organized and flexible way to support the causes and organizations that matter to them. For these donors, a comparatively modest starting point can be enough to turn a series of individual donations into a longer-term charitable giving strategy.