Donor-Advised Fund

A donor-advised fund is sometimes described as a "charitable checking account," though that analogy only goes so far. The donor contributes assets — cash, securities, or sometimes other property — to an account held by a sponsoring organization (a community foundation or a financial-institution-affiliated charity, for example). The contribution is generally treated as a completed charitable gift at the time it is made, which means the donor may claim a tax deduction in that year even if the actual grants to charities happen years later. The sponsoring organization takes legal ownership of the assets; the donor retains advisory privileges to recommend which charities receive grants.

The word "advisory" matters. The donor advises — recommends — where the money should go, but the sponsoring organization has legal authority over the funds and must confirm that recipients are qualified charities. In practice, sponsors follow donor recommendations in the vast majority of cases, but families should understand that a DAF contribution is irrevocable; the money cannot be returned to the donor. This is the key distinction from simply setting aside funds in a personal account earmarked for giving. Families sometimes use a DAF alongside or instead of a private foundation, drawn by the simpler administration and lower cost of entry.

A DAF can accept contributed assets that have appreciated significantly — shares of stock, for instance — allowing the sponsoring organization to sell them and potentially avoid the capital-gains treatment the donor would have faced on a direct sale, while the full fair-market value may be deductible. These tax characteristics depend on current law and individual circumstances, so families must work with qualified CPAs. Within a family office context, a DAF often serves as the first philanthropic infrastructure a family establishes, sometimes functioning as a simpler entry point before a family decides whether a private foundation is warranted.