Grow Your Charitable Giving With Donor-Advised Funds

For families who have built meaningful wealth and want to give back, few vehicles offer the flexibility and tax-efficient features of donor-advised funds (DAFs). These charitable giving accounts have grown dramatically, and recent tax law changes make understanding them more relevant than ever.

One charitable giving vehicle consistently generates interest among donors, nonprofit leaders, and families exploring their philanthropic goals: the DAF. As tax rules evolve and charitable planning becomes more complex, many donors are looking for flexible and tax-efficient ways to support the causes they care about.

In this article, we explore DAFs, how they work, and what drives their popularity.

What is a donor-advised fund?

A donor-advised fund (DAF) is a charitable giving vehicle with numerous tax benefits. A donor (grantor) can contribute cash and securities, including appreciated assets, to a nonprofit (grantee) of the donor’s choice. These contributions are tax-deductible.

The donor has no obligation for future gifting and can develop a plan for periodic charitable giving. Placing appreciated assets in a DAF can help reduce capital gains taxes. For families with concentrated stock positions or significant real estate holdings, this can be particularly valuable — transferring appreciated assets to a DAF rather than selling them first can help address capital gains liability while supporting the causes you care about. Some DAF sponsors allow donors to recommend an outside wealth advisor when donated assets meet certain thresholds.

Why donor-advised funds are growing

DAF assets have grown dramatically over the past decade. According to the Donor Advised Fund Research Collaborative (DAFRC), which took over the annual DAF report from the National Philanthropic Trust starting with the 2025 edition, DAFs reached record levels in fiscal year 2024.² Total assets grew 27.5% to $326.45 billion, while contributions rebounded strongly, increasing 37.3% to $89.64 billion.³

Grantmaking from DAFs continued to rise, with a 19.0% increase to $64.89 billion.⁴ Most remarkable is the number of DAFs, which hit a record 3.56 million accounts.⁵ The overall payout rate from DAFs increased to 25.3%, reflecting donors’ growing engagement with the charities they support.⁶ The average DAF account size also grew 7.8% to $91,611, suggesting that donors are not only opening more accounts but also funding them more generously.⁷

DAFs vs. private foundations

Why would donors establish a DAF versus a private foundation? The DAF has several advantages for the donor. It’s easier to set up, and unlike private foundations, DAFs generally avoid many of the administrative costs, excise taxes, and annual distribution requirements applicable to private foundations. Donors can deduct up to 60% of adjusted gross income (AGI) for cash grants and 30% for stock or real property, which is more than the 30% for cash and 20% for stock allowed for private foundation grants.

For families managing established wealth, the simplicity and cost efficiency of a DAF can be particularly appealing. Private foundations require ongoing administrative oversight, board governance, and annual reporting. A DAF eliminates those burdens while allowing meaningful charitable impact. Another distinction is control. With a private foundation, you direct investments and governance decisions. With a DAF, the sponsoring organization manages administration, and you recommend grants. For many families, that trade-off — giving up some control in exchange for simplicity and cost savings — is well worth it.

Beyond tax considerations, donor-advised funds can also be a powerful tool for family philanthropy. Many families use DAFs to involve children and grandchildren in charitable decision-making, helping create a shared sense of purpose while establishing a long-term giving legacy. Because grants can be recommended over time, a DAF can serve as a platform for ongoing family engagement in philanthropy.

How the One Big Beautiful Bill Act changes the conversation

The One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025, introduces significant changes to charitable giving rules that took effect Jan. 1, 2026.⁸ For families who itemize their deductions, these changes may make it worthwhile to take a more strategic approach to charitable giving.

0.5% AGI floor

Itemizers now face a 0.5% of AGI floor on charitable deductions. Only contributions above that threshold are deductible, which means smaller annual gifts may generate less tax benefit.⁹ For example, a family with $500,000 in AGI can only deduct gifts exceeding $2,500 — the first 0.5% of AGI given to charity does not generate a deduction.

35% tax benefit cap

For donors in the top tax bracket, itemized deductions including charitable gifts are limited to a 35% tax benefit, applied after the floor. This means high-income donors need to give more to achieve the same effective deduction.¹⁰

Nonitemizer deduction

Taxpayers can now deduct up to $1,000, or $2,000 for joint filers, without itemizing. However, gifts to DAFs, private foundations, and supporting organizations are excluded from this deduction.¹¹ This makes DAFs a tool primarily for itemizers — another reason to coordinate giving strategically.

Corporate floor

Corporations now face a 1% floor on charitable deductions.¹² For business owners considering corporate giving, this new floor adds another layer to plan around.

Who should consider a donor-advised fund?

While DAFs can benefit a wide range of charitable donors, they may be particularly valuable in certain situations.

A DAF may be attractive for individuals and families who:

• Hold highly appreciated securities.
• Anticipate the sale of a business or other liquidity event.
• Expect unusually high taxable income in a given year.
• Want to simplify charitable administration and recordkeeping.
• Wish to involve family members in charitable decision-making.
• Plan to bundle multiple years of charitable contributions into a single tax year.

Strategic giving with donor-advised funds

These changes may make timing and strategy more important. One approach is charitable bunching — concentrating multiple years of giving into one tax year to exceed the 0.5% AGI floor and maximize deductions.¹³ A DAF can be an effective tool for implementing this strategy. A donor can make a large, one-time contribution to a DAF in a high-income year, exceeding the floor and maximizing deductibility. The donor can then recommend grants from the DAF to charitable organizations over time, preserving flexibility while front-loading the deduction.¹⁴

This approach lets you coordinate your charitable giving with your broader financial picture — aligning tax planning, investment decisions, and philanthropic goals in a way that works for your family’s unique situation. For families approaching a liquidity event, such as selling a business, a DAF can help provide an immediate deduction while allowing grants to flow to charities over many years. For families in the top tax bracket, the 35% tax benefit cap adds another consideration. While the deduction remains valuable, coordinating the timing and size of gifts with your overall tax strategy can help you make the most of the benefit within the new limits.

What’s not deductible

It’s worth noting what doesn’t qualify: Per the IRS, payments to a charity event, memberships, or tuition for a grandchild are not permitted as deductible gifts, as those are not charitable contributions.¹⁵

A growing tool for thoughtful giving

As charitable giving becomes increasingly intertwined with tax, estate, and legacy planning, DAFs continue to offer a compelling blend of flexibility, efficiency, and impact. For many families, they help provide a practical way to turn philanthropic intentions into a structured, long-term giving strategy.

Whether you’re approaching a liquidity event, coordinating giving with estate and tax planning, or simply looking to structure your philanthropy more strategically, a DAF can help you protect and grow your charitable impact. As the data shows, more families are discovering this every year — and with the OBBBA’s new rules, the case for strategic giving through DAF has grown stronger.

Whether supporting a favorite charity today or creating a multigenerational philanthropic legacy, donors may benefit most when integrating charitable planning with their broader financial, tax, and estate planning strategies.

If you’d like to explore whether a donor-advised fund fits your giving strategy, contact Mercer Advisors. We can help you coordinate your charitable giving with your comprehensive financial plan.