What Is a Donor Advised Fund?
A Donor Advised Fund (DAF) is a charitable giving account administered by a sponsoring organization (typically a 501(c)(3) public charity) that allows the donor to make an irrevocable contribution, receive an immediate tax deduction under IRC Section 170, and then recommend grants to qualified charities over time. The contributed assets are invested and grow tax-free within the fund between the contribution and distribution.
As described in "Billionaire Wealth Strategies" (Jim Dew, 2024), Chapter 9, the DAF falls under the "R" (Reduce) component of the DEAPR framework.
How Does a Donor Advised Fund Work?
The donor contributes cash, publicly traded securities, or other assets to the DAF. Under IRC Section 170(b)(1)(G), cash contributions to a DAF are deductible up to 60% of contribution base, which IRC Section 170(b)(1)(H) defines as adjusted gross income computed without any net operating loss carryback; that 60% ceiling was made permanent by the One Big Beautiful Bill Act. Contributions of appreciated publicly traded securities held for more than one year are deductible at fair market value under IRC Section 170(e)(1), up to 30% of contribution base under IRC Section 170(b)(1)(C). Unused deductions carry forward for five years under IRC Section 170(d)(1).
The contributed assets are invested by the sponsoring organization and grow tax-free. The donor then recommends grants to IRS-qualified 501(c)(3) charities on their own timeline. There is no legal requirement to distribute in the year of contribution, though the sponsoring organization retains legal control and may impose minimum activity requirements.
DAFs are especially effective for "bunching" charitable deductions. Instead of giving $20,000 annually (potentially falling below the standard deduction, which is $32,200 for married couples filing jointly in 2026), an entrepreneur contributes $100,000 in a single high-income year, claims the full deduction, and recommends grants over the subsequent five years. The bunching strategy alternates between itemizing in the contribution year and claiming the standard deduction in other years. Two rules new for 2026 reinforce it. For tax years beginning after December 31, 2025, IRC Section 170(b)(1)(I) allows an itemizer to deduct only the portion of charitable gifts that exceeds 0.5% of contribution base, so concentrating several years of giving into one year clears that floor once instead of in every giving year; a C corporation faces a parallel floor of 1% of taxable income under IRC Section 170(b)(2)(A). Separately, IRC Section 68 now reduces total itemized deductions by 2/37 of the lesser of those deductions or the taxable income above the 37% bracket threshold, which lowers what the last dollar of deduction is worth to a top-bracket donor.
Contributing long-term appreciated stock avoids capital gains tax on the appreciation (up to 23.8% federal rate including the 3.8% NIIT under IRC Section 1411) while still providing a deduction for the full fair market value. The combined tax benefit of the avoided capital gains plus the income tax deduction makes appreciated stock the most tax-efficient asset to contribute.
When Do Entrepreneurs Use Donor Advised Funds?
High-income years are ideal for bunching multiple years of charitable giving into a single deduction. A business sale year, large bonus, or year with significant capital gains creates the opportunity for a substantial DAF contribution.
Business sale years allow entrepreneurs to offset a large capital gain with a significant DAF contribution of appreciated assets, reducing the overall tax burden of the liquidity event.
Appreciated asset disposal through the DAF avoids capital gains tax entirely. Donating appreciated stock instead of selling the stock and donating the cash produces a significantly better after-tax result. Under IRC Section 170(e)(1), the deduction for appreciated stock held more than one year equals the fair market value, not the cost basis.
Simplified giving administration consolidates all charitable donations through a single account. The sponsoring organization issues a single tax receipt for the contribution, and the donor manages grant recommendations through an online portal rather than tracking multiple charitable receipts.
How Does Dew Wealth Approach Donor Advised Funds?
DAFs pair with the Charitable Remainder Trust for comprehensive charitable planning. The DAF handles flexible, smaller-scale giving while the CRT under IRC Section 664 provides structured income and larger-scale asset transfer. The Fractional Family Office® coordinates the timing of DAF contributions with the annual tax strategy to maximize deduction value.
Proposed legislation, including the Accelerating Charitable Efforts (ACE) Act, has sought to impose minimum distribution requirements on DAFs. Under current law in 2026, no federal distribution minimum exists, but the regulatory landscape may change. Donors should monitor legislative developments and consider the sponsoring organization's own distribution policies.
The irrevocable nature of the DAF contribution means the donor permanently gives up ownership of the contributed assets. While advisory privileges on grant timing and recipients are retained, the sponsoring organization has ultimate legal control under IRC Section 4966. Donors cannot reclaim contributions or redirect funds to non-charitable purposes.