How to use a donor-advised fund (DAF) for strategic giving and tax efficiency

Imagine a family—whether they’ve built a successful business, saved diligently over the years, or recently come into unexpected wealth—wanting to give back in a meaningful way. They value charitable giving but also want a structured, tax-smart approach that aligns with their financial goals. Instead of dealing with complex tax implications each year, they turn to a DAF—a flexible giving vehicle that allows them to support causes they care about while enhancing tax benefits.

In 2023, charitable assets in DAFs grew nearly 10% to $251 billion, fueled by a stock market rebound. High-net-worth individuals continue to rely on DAFs for upfront tax deductions and tax-free investment growth, solidifying their role as a resilient long-term giving tool.

What is a DAF and How Does It Work?

A donor-advised fund (DAF) is a charitable investment account where donors contribute assets, receive an immediate tax deduction, and recommend grants to charities over time. High-net-worth individuals donate through DAFs for the following benefits:

• Tax-efficient contributions: Donate cash, stocks, exchange-traded funds (ETFs), qualified charitable distributions (QCDs), or mutual funds to avoid capital gains taxes.
• Tax-free growth: Assets grow tax-free until distributed, increasing charitable impact.
• Strategic giving: Unlike direct donations, DAFs allow donors to plan long-term philanthropy while optimizing tax benefits.

By offering flexibility in when and how funds are distributed, a DAF helps donors support causes that matter most while gaining a financial advantage.

Why High-Net-Worth Individuals Choose DAFs

A DAF is a tax-efficient, flexible, and high-impact giving tool that allows donors to contribute now and distribute funds later. With financial benefits, administrative ease, and privacy, DAFs are an attractive option for long-term philanthropy.

Key Benefits of a DAF

These funds provide significant tax advantages while allowing donors to grow their contributions tax-free and support charities over time.

• Immediate tax deductions ─ Deduct up to 60% of adjusted gross income (AGI) for cash donations and 30% for securities to lower taxable income.
• Capital gains tax savings ─ Avoid capital gains tax by contributing stocks, ETFs, or other appreciated assets.
• Bundled giving strategy ─ Combine multiple years’ worth of donations into one tax year while growing assets tax-free.
• QCD integration ─ Using QCDs to complement a DAF-based giving strategy.

DAFs also simplify charitable giving by eliminating setup fees, board governance, or IRS filings, while keeping administrative costs low. Since donations are not subject to public disclosure, donors benefit from added privacy and control over when and how the funds are distributed.

By leveraging a DAF, high-net-worth individuals can enhance their philanthropy, reduce tax liability, and make a lasting charitable impact.

For more on how to maximize your giving strategy, check out our related article: Make the Most of Your Charitable Contributions in 2025.

How to Set Up and Manage a DAF

Setting up a DAF is a straightforward process. Follow these steps to establish and manage your DAF effectively:

1. Define Your Charitable Goals – Work with an advisor to align giving with your financial plan.
2. Choose a DAF Provider – Select a sponsor organization and investment manager.
3. Fund the DAF – Transfer cash, stocks, or other appreciated assets.
4. Assign Successors – Designate family members as advisors to maintain a legacy of giving.
5. Plan Distributions – Recommend grants to charities over time.

Once your DAF is set up, you can contribute and distribute funds at your own pace, aligning your giving with your personal values and financial goals.

We Can Help

At Elliott Davis, we specialize in tax-optimized charitable giving strategies for high-net-worth families. Whether you’re considering a DAF or complex asset donation, our team can help structure a plan that maximizes your impact while minimizing tax liabilities.

Contact us today to start building your legacy of giving.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.