What is a donor-advised fund, and how does it work?

A donor-advised fund, or DAF, is a charitable giving account maintained by a sponsoring charity. You make an irrevocable contribution, then recommend how the assets are invested and which eligible charities receive grants. The sponsor has final authority over those recommendations. You may qualify for a deduction when you contribute, rather than when grants are distributed.

Are donor-advised fund contributions tax deductible?

Contributions to a DAF may qualify for a charitable income tax deduction if you itemize and meet the applicable requirements. The deductible amount depends on the asset, how long you’ve held it, income-based limits, and other tax rules. You don’t receive another deduction when the DAF makes grants. A contribution also doesn’t reduce your tax bill dollar for dollar.

Can I donate appreciated stock to a donor-advised fund?

Yes, if the sponsoring charity accepts it. Donating appreciated stock directly can generally avoid the capital gains tax you would owe by selling the shares yourself. Stock held longer than one year may qualify for a fair-market-value deduction, subject to applicable limits. The gift is permanent, so contribute only assets you can afford to dedicate to charity.

What are the disadvantages of a donor-advised fund?

DAF contributions are permanent, and the sponsoring charity legally controls the assets. Accounts may carry administrative and investment fees, investments can lose value, and grants must meet eligibility requirements. You can’t withdraw the money for personal use. Before contributing, review the sponsor’s fees, investment choices, grant policies, and options for passing on an advisory role.

Donor Advised Funds: Tax-Smart Giving and Client Growth

Planning Strategies Tax-Efficient Philanthropy

Published on Jun 25, 2026 • Updated on Oct 16, 2026

This article was written by Adem Tumerkan

Content Editor, Dunham | 2025 ThinkAdvisor Luminaries Award Winner | 2026 Wealthies Finalist, Thought Leader of the Year | Macroeconomics, markets, geopolitics & global trends

A donor-advised fund, or DAF, is a charitable giving account that lets clients contribute assets now and recommend grants to qualified charities over time. Contributions are irrevocable and may qualify for a charitable income tax deduction in the year they are made, subject to applicable rules and limits. The sponsoring charity owns and controls the assets, while donors retain advisory privileges. For financial advisors, a DAF can bring tax planning, family giving, and legacy conversations together. Here’s how it works—and what clients should understand before contributing.

Key Takeaways

DAFs offer immediate tax deductions, investment growth, and flexible giving — all in one tool.
Advisors retain investment control when using the Dunham Donor Advised Fund.
DAFs open doors to deeper conversations, intergenerational planning, and practice differentiation.

The Giving Revolution Advisors Can't Ignore

In today’s wealth management world, the most powerful financial conversations aren’t always about stocks, taxes, or retirement. Sometimes, they start with a simple question:

“What’s the best way to give back?”

Well, donor-advised funds (DAFs) are fast becoming the answer.

For advisors, they’re not just another charitable tool. No - they’re a bridge to deeper relationships, smarter tax moves, and lasting loyalty.

If you’ve ever had a client ask about meaningful giving - or how to make a difference without making a mess of their taxes - keep reading.

What Is a Donor-Advised Fund?

A donor-advised fund is a charitable investment account run through a sponsoring organization (such as a financial firm or nonprofit).

When clients contribute assets - cash, stocks, crypto, even complex assets like real estate - those assets grow tax-free inside the DAF. Clients can then recommend grants to qualified charities whenever they choose.

Think of it as a charitable giving account with compound benefits:

Immediate tax deduction
Tax-free growth
Grant flexibility over time
Legacy planning and family involvement

Here’s the big picture: Clients really have only three places to leave their money: family, charity, or the government. Your job is to help clients give intentionally - and avoid paying more tax than the rules require.

Contributing to a DAF vs. Recommending Grants

Stage	What Happens	Tax Treatment

Contribute assets	The gift becomes irrevocable, and the sponsor takes ownership.	A charitable deduction may be available, subject to applicable rules.
Invest the balance	Assets remain dedicated to charity and may gain or lose value.	No additional donor deduction arises from investment growth.
Recommend grants	The sponsor reviews recommendations and distributes approved grants.	No second deduction when grants are paid.

Donor Advised Funds: Tax-Smart Giving and Client Growth

Key Takeaways

The Giving Revolution Advisors Can't Ignore

What Is a Donor-Advised Fund?

Contributing to a DAF vs. Recommending Grants

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Frequently Asked Questions About Donor-Advised Funds

Sources

Disclosures