The Legacy Planning Benefits of Donor-Advised Funds

John G. Youngs,
Partner, CEO

“How do I give back in a way that truly reflects what matters most to me?”  It’s a question we hear repeatedly from individuals and families eager to make an impact that extends beyond their lifetime. When it comes to building a meaningful legacy, donor-advised funds (DAFs) offer one of the most flexible and tax-efficient solutions to turn your philanthropic intentions into lasting action.

Whether you want to support a local nonprofit, champion causes close to your heart, or teach your children the value of giving, a donor-advised fund can help you create a legacy that reflects your values and continues to make a difference for generations to come.

This guide will walk you through what donor-advised funds are, why they’re particularly effective for legacy planning, and how you can start shaping your legacy today.

What Is a Donor-Advised Fund (DAF)?

A donor-advised fund is a charitable giving account established through a public charity or financial institution. Here’s how it works:

  1. Contribute: You contribute assets such as cash, appreciated stock, or other investments.
  2. Receive Immediate Tax Benefits: Your contributions are tax-deductible in the year you make them.
  3. Recommend Grants: You can then recommend charitable grants from the fund to qualified nonprofits at a pace and strategy that works for you.

A donor-advised fund allows you to combine immediate tax advantages with the freedom to thoughtfully plan your giving over time, making it an effective tool for both strategic philanthropy and tax planning.

Why Donor-Advised Funds Work Well for Legacy Planning

For many individuals and families, involving a DAF in the legacy planning process offers benefits that go beyond mere convenience. 

1. Flexibility to Give at the Right Time

Timing is everything. With a DAF, you can contribute during high-income years or after financial windfalls (like selling a business or receiving an inheritance), take the deduction immediately, and decide later which organizations to support.

Consider a couple in their peak earning years who contribute appreciated stock to a donor-advised fund. They receive immediate tax benefits while gaining the flexibility to support their philanthropic goals thoughtfully—when they can make the most impact.

2. Tax-Smart Gifting

DAFs can be incredibly tax efficient. By donating appreciated assets like publicly traded stock directly to your DAF, you can avoid capital gains taxes and potentially increase the impact of your gift.

Key tax benefits include:

  • Donating appreciated assets held for over a year allows you to deduct their full market value.
  • Receiving an immediate tax deduction of up to 30% of adjusted gross income (AGI) for gifts of non-cash assets and up to 60% for cash gifts.1
  • Enjoying a five-year carry-forward for donations that exceed your AGI

Not only are you reducing your taxable income today, but you’re also creating a fund that can benefit countless organizations tomorrow.

3.  Create a Culture of Giving

By making contributions to a DAF and allowing your children to help choose which causes or organizations to support, you provide them with hands-on experience in philanthropy. This involvement can spark meaningful conversations about values, priorities, and social responsibility, helping them understand the impact of giving over time.

As the fund grows and grants are made, children observe the long-term benefits of thoughtful generosity, fostering a lifelong habit of intentional and informed charitable giving.

Reducing Tax Burdens with Donor-Advised Funds

If you’ve experienced a significant financial gain (such as a business sale or unexpected investment returns), a DAF can potentially reduce your tax liability while pre-funding your charitable giving for years to come.

Contribute Appreciated Assets to Maximize Efficiency

One of the most commonly used strategies for funding a DAF is contributing appreciated assets, such as publicly traded securities, mutual funds, or real estate held for over one year.  In a high-tax year, the tax savings from a contribution to a DAF can be amplified by avoiding capital gains taxes on low-basis stock positions used to fund the DAF.

Why contribute appreciated assets?
  • Avoid capital gains taxes, which would otherwise apply if you sold the asset.
  • Deduct the fair market value of the asset on your taxes (up to 30% of AGI).2
  • Use assets you already own to create more impact with less out-of-pocket expense.
Key Considerations for Creating a DAF

To maximize the impact of your DAF, keep these considerations in mind:

  • Name Successors: Designate successors to ensure your fund’s purpose continues after your lifetime.
  • Strategize Contributions: Contribute during high-income years or after financial windfalls to capitalize on tax advantages.
  • Work With an Advisor: Ensure your DAF aligns with your larger estate plan and long-term financial goals.
Your Legacy Starts Here

Building a legacy isn’t just about transferring wealth; it’s about shaping a story of generosity, purpose, and impact.

Whether you want to engage your family in multigenerational philanthropy, support a cause you’re passionate about, or help mitigate your tax burden, investing in donor-advised funds can help you achieve your goals. Reach out today to discover if DAFs are a good fit—and how they can be integrated into your overall financial strategy. Together, we can create a legacy that endures for a lifetime and beyond.

Sources
1https://www.investopedia.com/terms/d/donoradvisedfund.asp
2 https://www.vanguardcharitable.org/charitable-tax-deductions#

This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.