If you give to charities, churches, community organizations, schools, or causes you care about, a Donor Advised Fund may be the most tax-efficient tool you're not using. We work with many clients on the Chicago North Shore who are generous givers and who, with a simple structural change, have been able to give more while paying significantly less in taxes.
Here's some frequently asked questions our clients often ask:
What is a Donor Advised Fund?
A Donor Advised Fund (DAF) is a charitable giving account, typically held at a major custodian. You make a contribution to the DAF and receive an immediate tax deduction, then recommend grants to your chosen charities over time on your own schedule. The funds grow tax-free inside the account until you distribute them.
Why use a Donor Advised Fund instead of just writing checks to a charity?
The key advantage istiming flexibility. The standard deduction for married couples in 2026 is $32,200, which means most households don't itemize and get no tax benefit from individual charitable gifts. By "bunching" two or three years of charitable giving into a single DAF contribution, you can exceed the standard deduction in one year while still spreading your gifts to charities over multiple years.
One new development worth noting: starting in 2026, non-itemizers can deduct up to$2,000 in charitable donations(for married couples filing jointly) on top of the standard deduction. For smaller givers this is helpful, but for clients making significant charitable gifts a DAF with bunching still produces a far greater tax benefit.
What's the best type of asset to contribute to a Donor Advised Fund?
Appreciated securities like stocks, mutual funds, or ETFs that have increased in value. When you donate appreciated shares directly to a DAF, you may avoid paying capital gains tax on the appreciation and receive a deduction for the full fair market value. This is often more than twice as tax-efficient as selling the asset and donating cash.
Can I use a Donor Advised Fund to give from my IRA?
If you are 70½ or older, you can make a Qualified Charitable Distribution (QCD) directly from your IRA to a qualifying charity which is up to $111,000 per year in 2026. This satisfies your RMD, reduces your taxable income, and avoids IRMAA exposure. One important note: QCDs cannot go to a DAF, they must go directly to an operating charity. We help clients coordinate QCDs and DAFs as complementary strategies.
How does a Donor Advised Fund fit into estate planning?
DAFs are an excellent estate planning tool for charitably-inclined families. You can name the DAF as a beneficiary of your IRA which allows you to avoid the income tax that heirs would owe on inherited pre-tax funds and you can involve your children or grandchildren in recommending grants, creating a family giving tradition without the complexity and cost of a private foundation.
Who is a Donor Advised Fund best suited for?
A DAF works best for clients who:
- Give regularly to churches, schools, community organizations, or other charities
- Hold appreciated securities in a taxable account
- Have a high-income year where a large deduction would be especially valuable
- Want to involve family in giving decisions without the complexity of a private foundation
Many of our clients who give to local organizations and community foundations across Illinois and the greater Chicagoland area have found that a DAF simplifies their giving and improves their tax outcome. We serve clients throughout the North Shore, Lake County, and beyond. Questions? Call 847-350-6177 or contact us here.
Generally, a donor advised fund is a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization, which is called a sponsoring organization. Each account is composed of contributions made by individual donors. Once the donor makes the contribution, the organization has legal control over it. However, the donor, or the donor's representative, retains advisory privileges with respect to the distribution of funds and the investment of assets in the account. Donors take a tax deduction for all contributions at the time they are made, even though the money may not be dispersed to a charity until much later.