What is a donor-advised fund (DAF)?

A donor-advised fund, or DAF, is like a charitable investment account for the sole purpose of supporting charitable organizations you care about.

When you contribute cash, securities, or other assets to a donor-advised fund at a public charity, like Fidelity Charitable, you are generally eligible to take an immediate tax deduction. Then those funds can be invested for tax-free growth, and you can recommend grants to any eligible IRS-qualified public charity.

You want your charitable donations to be as effective as possible when you give. Donor-advised funds are the fastest-growing charitable giving vehicle in the United States because they are one of the easiest and most tax-advantageous ways to give to charity. Let’s take an in-depth look at how a DAF works.

What are the benefits of a donor-advised fund (DAF)?

1. Easily contribute a wide range of assets

Giving non-cash assets is often more tax-advantageous than giving via cash or credit cards, but it is difficult for many charities to accept these charitable contributions. Contributing assets other than cash is simple with a Giving Account. In some cases, it’s possible to transfer stock directly from your brokerage account with the click of a button. See what you can donate.

Assets generally accepted include:

2. Maximize potential tax benefits

As soon as you make a charitable contribution, you are eligible for an immediate tax deduction, just as you would be by donating to another public charity, like your local homeless shelter or food pantry. But some donations could make you eligible for additional benefits.

Cash donations
If you donate cash, via check or wire transfer, you're generally eligible for an income tax deduction of up to 60% of your adjusted gross income.

Donations of long-term appreciated assets
Donating long-term appreciated securities directly to charity—instead of liquidating the asset and donating the proceeds—can help maximize both your tax benefit and the overall amount you have to grant to charity. These donations provide two tax benefits:

• Become eligible for an income tax deduction of the full fair-market value of the asset, up to 30% of your adjusted gross income        
• Potentially eliminate capital gains tax on long-term appreciated assets, as long as they’ve been held for more than a year

3. Invest your donation for tax-free growth

Once you have funded your donor-advised fund, you may recommend an investment strategy for your account—potentially growing your account and providing you with more dollars to grant to charity. Many sponsoring organizations also have programs allowing you to nominate your financial advisor to manage the investment of your charitable funds.

4. Simplify recordkeeping and organization

With a donor-advised fund, you don’t have to keep track of every gift acknowledgment from every charity you support—just the receipts from your DAF contributions. When you’re ready to support your favorite charity, you can simply log in to your account and recommend a grant to any IRS-qualified public charity. 

5. Support your legacy planning

You can incorporate your donor-advised fund into estate planning by making a bequest in your will to the DAF sponsor or by making the sponsor a beneficiary of a retirement plan, life insurance policy or charitable trust. By leaving instructions with the DAF sponsor, you can support multiple charities with one bequest. These gifts can also help reduce or eliminate the estate tax burden for your heirs.

Many sponsoring organizations also enable you to create a succession plan for your donor-advised fund—allowing you to pass the remaining funds in your account on to your heirs or your favorite charities. Some programs allow you to break the fund up into multiple smaller funds to pass down to different successors. While sponsoring organizations handle succession differently, donor-advised funds can be a valuable tool for estate planning.

How can I use my donor-advised fund to support charities?

With a donor-advised fund, you generally CAN:

• Support IRS-qualified public charities with grant recommendations from the donor-advised fund. The public charity sponsoring your account will conduct due diligence to ensure the funds granted go to an IRS-qualified public charity and are used for charitable purposes. 
• Choose whether to recommend anonymous grants to charities or to provide grant acknowledgment contact information with their grant recommendations. While donors choose to provide information about themselves on more than 90% of grants recommended through Fidelity Charitable, donor-advised funds offer the option for anonymous granting for those who wish to recommend grants privately.
• Specify a specific use, campaign, or purpose for your grant recommendation. While you cannot fulfill legally binding pledges with a donor-advised fund, you can attach a special purpose to your grants, which the sponsoring organization will relay to the charity. Similarly, you may make grant recommendations “in honor of” or “in memory of” a loved one.

With a donor-advised fund, you generally CANNOT:

• Support organizations other than IRS-qualified, 501(c)(3) organizations, such as political groups or crowdfunding campaigns. Private foundations are also ineligible to receive donor-advised fund grants.
• Recommend grants that may provide a personal benefit—such as school tuition for a grandchild or tickets to a charity event that you will attend. Because you would receive something of personal value from these grants, they are not eligible, just like they would not be eligible for a tax deduction. Donor-advised fund dollars are to be strictly used for charitable purposes such as general scholarship programs at your alma mater or contributions to your local church, synagogue or mosque. 
• Make a Qualified Charitable Distribution from your IRA. Qualified Charitable Distributions also cannot be made to private foundations, split-interest charitable trusts, or supporting organizations.

What happens to my donor-advised fund after my death?

You’ve worked hard to establish your charitable legacy. Make sure to pass it on by nominating an individual, a charity, or a combination of both as the successor for your Giving Account. Nominating a successor(s) is the simplest way to continue the legacy of your Giving Account after your passing. You can establish a succession plan when you open a Giving Account, or you can nominate a successor(s) at any point by logging in to your Giving Account, clicking "Your profile," and choosing the "Successor" tab.

If a successor is not recommended, then upon your death, any remaining balance will be granted out in accordance with the Fidelity Charitable Trustees’ Initiative. For more information regarding successor options, review the Fidelity Charitable Giving Account Guide.

How much does a donor-advised fund cost?

The Fidelity Charitable Giving Account has no minimum initial contribution requirement and one of the lowest annual fees of any donor-advised fund. Total fees for a Giving Account typically amount to about 1% of the balance. That's generally less than the operating costs associated with a private foundation or the fees for donating with a credit card.

How is a donor-advised fund different from a private foundation?

Private foundations and donor-advised funds are both charitable giving vehicles that help donors facilitate their giving and achieve their philanthropic goals. Unlike donor-advised funds, private foundations are separate legal entities, generally established by an individual, family, or corporation. Private foundations are subject to more stringent tax laws and regulations than public charities and are responsible for their own tax filing and recordkeeping. Benefits of a private foundation include greater administrative control over assets and grantmaking, including the ability to make grants to organizations other than IRS-qualified, 501(c)(3) public charities. With different structures, rules, and features, donor-advised funds and private foundations each come with a unique set of advantages and limitations. Learn more about private foundations.