A Donor-advised fund (DAF) is often called a personal charitable savings account. A donor creates an account with a sponsoring organization, which can be a nonprofit or an investment company. The donor then contributes cash, stock, or other assets like real estate and artwork and can take an immediate tax deduction for the gift. An adviser manages and invests the assets and works with the donor to identify charitable causes they wish to support.

Advantages of donor-advised funds include:

Contributing assets to a DAF account provides an immediate tax deduction. If you suddenly acquired many assets, perhaps from an inheritance or selling a business, you would be bumped to a higher tax bracket. If you knew you wanted to give to charity but needed more time to investigate your options, a DAF would be an ideal solution. Upon creating a DAF with the number of assets you desired to eventually contribute to charity, that amount would immediately be considered a charitable deduction, maintaining your lower tax position.

The money in your DAF account grows until you are ready to make a charitable gift. While your adviser controls investing and spending the money on your behalf, he or she will typically follow your wishes. Under this advisement, you can support what you want to support when you want to support it.

As part of your DAF agreement, a professional adviser will not only handle the investment component but he or she will also work with you to explore charities that best fit your interests and will also manage the mundane administrative tasks for you.

One of the main reasons DAFs have gained such widespread popularity is the fact that they are feasible options for middle-income Americans who wish to support charitable causes. Most sponsoring organizations only require anywhere from $5,000 to $10,000 to create a DAF account. Additionally, the administrative fees are typically low for the value of the adviser services.

DAFs present a tool to show children and grandchildren the power of charitable giving. You, alongside your family, can enjoy collaborating to identify causes you want to support. Also, many sponsoring organizations allow accounts to be passed down after the account holder’s life. This means an initial account has the potential to grow exponentially over the course of several generations, increasing its overall impact.