If you’re like many Christians I work with, you want your giving to be both meaningful and wise. You want to support ministries that matter to you, bless others in need, and do it all in a way that honors God. That’s where a powerful tool called a donor advised fund (DAF) can help. It’s one of the easiest, most flexible ways to give—especially if you’re looking for a strategy that combines generosity with biblical stewardship.
Let’s look at what a donor advised fund is, when it might be the right fit, and what you need to be aware of before starting one.
What Is A Donor Advised Fund?
In simple terms, a donor advised fund is like a charitable investment account. You put money or assets into it, receive an immediate tax deduction, and then give from that account over time to charities and ministries you care about.
A donor advised fund allows you to separate the timing of your tax deduction from the timing of your charitable gifts. You get the tax benefit now and the time to give with intention later.
Donor-advised funds are offered through sponsoring organizations, which are various charitable organizations (charitable foundations, financial firms with a charitable arm, colleges, mission organizations etc).
Technically, when you donate to a DAF, you lose control of the asset. The sponsoring organization determines when and whether to sell the asset you give it, and can even restrict what charities you can make gift recommendations to. However, in practice as long as you abide by the sponsoring organizations terms, this is rarely an issue, as they usually will disperse funds based on your recommendations.
Here’s how it works:
- You donate cash, stocks, or other assets into your DAF.
- You get a tax deduction the year you donate.
- The money can grow tax-free in the account.
- You recommend grants to qualified charities whenever you’re ready.
You can save on taxes and give in a way that’s organized, flexible, and aligned with your faith.
Practical Ways to Use a Donor-Advised Fund
There are many situations where this can be helpful. Here are a few:
Selling a Business
If you plan to sell a business, a DAF can be a powerful tool. You can donate a portion of your business interest before the sale, allowing you to avoid capital gains on that portion and receive a charitable deduction for the fair market value. This strategy reduces your tax liability and frees up resources for long-term charitable giving.
Appreciated Stock or Real Estate
Donating appreciated stock or real estate is one of the most tax-efficient ways to give. Instead of selling the asset and paying capital gains taxes, you can donate it directly to your DAF. You receive a tax deduction for the fair market value as of the date of the gift, the sponsoring organization will sell it tax-free, and the full value goes to your giving fund.
Giving After You Die
You can also name your DAF as a beneficiary in your Will, retirement account or Trust (this is called testamentary giving). One of the shortcomings of a traditional estate plan is that it can be cumbersome to make changes. If you choose to leave money in your Will to a charity, you need to ensure it doesn’t experience mission drift (not doing what they originally said they would do). If mission drift happens, then you need to have an Attorney change your Will.
Making the DAF a beneficiary can avoid these headaches. You appoint one or more people to distribute the gifts after your passing, and you can leave them instructions on where the funds should go. They can do the research and recommend the gift being made that meets your criteria.
A DAF is a smart way to ensure your gifts don’t go to organizations who stray from their core values, while not having to update your estate plan more regularly.
High-Income Year Planning
Maybe you’ve had a big year—sold property, received a large bonus, or had an unusually high income. Contributing to a DAF in that year allows you to take the full deduction now, while spreading out the actual giving over time. This gives you the space to think, pray, and be strategic with your generosity.
Why Christian Givers Love DAFs
Intentional and Prayerful Giving
Some of the examples listed above are stressful times in our lives. Having the space and time to carefully consider our giving is vital. And with the money already given (and the tax deduction already received), you can take your time and pray about where to give.
More to Give, Less to the IRS
Donating appreciated assets like stocks means you avoid capital gains taxes AND get a full deduction. That means more money goes to God’s work, not the government.
Simplicity and Flexibility
You can give to multiple ministries, track all your giving in one place. For busy families or retirees, it’s a practical and efficient solution.
Give Anonymously
Matthew 6:3-4 “But when you give to the needy, do not let your left hand know what your right hand is doing, so that your giving may be in secret. And your Father who sees in secret will reward you.”
When you open a DAF account, you can select the name for it. That name is all the charity will see, so if you choose wisely, it enables you to give anonymously if desired.
Donor Advised Fund Pitfalls
As much as I appreciate the value of DAFs, I caution clients about a few potential pitfalls:
Investing, Not Giving
I have had people tell me they are investing their DAF, rather than giving today, to multiply the benefits for Kingdom work. At face value this seems like a reasonable approach, but when Jesus returns, how much money will be sitting in DAF’s that could have been used to further His Kingdom now?
Giving Inertia
As of 2023 there was more than $251.52 billion in DAF accounts that had not been distributed to charity yet. Because you’ve already received the tax benefit, it’s easy to let the money just sit. Without a plan, people sometimes forget to actually grant the funds to charities. Remember that the giving isn’t finished until the money is in the hands of the ministry.
Losing the Personal Connection
Giving through a DAF can feel impersonal. If you don’t include any identifying information in the name of your account, you won’t receive any correspondence from the charity. Also, you might miss the joy of handing a check to a missionary or talking directly to a nonprofit leader. That relational connection is a beautiful part of giving.
Generational Drift
If you plan to pass your DAF on to your kids, make sure you’re also passing on your values. Without discipleship, the next generation might not gift those funds the way you intended.
Institutional Dependence
DAFs are managed by sponsoring organizations. Choose one that aligns with your values, and be aware that policies can change. Choosing a DAF sponsored by a Christian organization who shares your worldview, can be helpful.
Qualified Charitable Distributions (QCD’s)
When you turn 70 ½ you are able to give directly from your IRA to charity (this is called a QCD). However, you can’t send money from your IRA to a DAF, the funds must go directly to a charity.
Important Points To Consider Before Opening a Donor Advised Fund
There are over 1,100 organizations who sponsor DAF’s in the US, however, there is no resource to compare all your options. Here are some of the key points you will want to consider during your search:
- Is the DAF sponsored by a secular organization or a faith-based organization?
- Do they restrict gifts to certain types of charities? Some DAF’s require you to select organizations they have pre-approved, or only allow donations to faith-based charities.
- How much does it cost? Many organizations charge .60% or more, and the fee applies even if you make gift requests a few days after the assets arrive at the DAF.
- There are free faith-based DAF’s such as the one offered by the PCA Foundation. The Foundation doesn’t charge a fee to allow as much money as possible to go for Kingdom impact. However, I would encourage people to leave some money to them as they still have costs.
- Can I include the DAF as a beneficiary in my estate plan? Not all DAF’s accommodate this.
- What types of assets will the DAF accept? Some do not handle real estate or collectibles, but others will. If you know what you intend to donate, ensure the DAF can handle it.
Regardless of the DAF you select, be sure to read all their documentation and ask questions.
Final Thought
Giving is an act of worship. It’s a way to reflect God’s generosity toward us and invest in what matters for eternity. A DAF can help you be intentional and faithful with the resources God has entrusted to you.
If God has blessed you with resources, don’t let them sit. Use them, and give with the kind of cheerful, faith-filled joy that reflects the heart of Christ.
