Charitable giving during one’s lifetime is a meaningful way to make a positive impact. Combine this with potential tax benefits, and it’s even more compelling. However, record keeping is burdensome, and tax benefits can be difficult to achieve. Considering these hurdles, donor-advised funds (DAF) offer a unique solution by simplifying administration and providing strategic flexibility.
A DAF is essentially a charitable investment account. You contribute cash, appreciated securities, or even complex assets and receive an immediate tax deduction. From there, you have the flexibility to grow the account tax free while making grants to qualifying charities over time.
The tax benefits of contributing to a DAF are similar to making outright charitable gifts. Cash contributions can be deducted up to 60% of your adjusted gross income (AGI), while gifts of long-term appreciated securities are deductible at fair market value up to 30% of AGI. In addition, gifting appreciated securities avoids the capital gains tax that would be payable if you sold the securities and contributed cash. If your gift exceeds these limits, you can carry the deduction forward for up to five years.
For 2025, married couples filing jointly receive a standard deduction of $31,500. For those ages 65 and older, that amount increases to $46,700 when additional senior deductions are included. The high standard deduction has made it harder for taxpayers to benefit from itemizing charitable contributions. In most cases, the choice between itemizing deductions and taking the standard deduction is effectively made for you because of this deduction hurdle.
DAFs offer a solution to this obstacle. A taxpayer can accelerate multiple years of gifting into one year and make grants from the DAF to qualifying charities at their own pace. This is a concept known as “gift bunching”. Bunching gifts can help a taxpayer increase itemized deductions to exceed the standard deduction. For those looking to maximize the tax benefits of gifting, gift bunching is a powerful strategy.
Beyond tax planning, DAFs simplify the giving process. Instead of writing multiple checks to different charities, you make one contribution and manage all your grants from a single account. Centralizing your charitable gifting can simplify recordkeeping and ensure tax filing goes smoothly.
DAFs are a powerful tool to accomplish charitable gifting goals. They combine centralized administration, immediate tax benefits, and the ability to support meaningful causes at your own pace. While every situation is unique, these accounts are worth considering for anybody who is charitably inclined. Speak with a Legacy Trust advisor to help explore whether a donor-advised fund is right for you.
Collin Hartley,
Associate Wealth Advisor &
Wealth Planner