Donor-Advised Fund (DAF)
A charitable giving account held at a sponsoring public charity (Fidelity Charitable, Schwab Charitable, community foundations). You contribute and take the full income-tax deduction today; you recommend grants to operating charities over time. Simple, cheap, and tax-efficient for most HNW families — the common first step before a private foundation.
A Donor-Advised Fund () is a charitable-giving account maintained by a sponsoring public charity. You make an irrevocable contribution to your DAF account, take the full income-tax charitable deduction in the year of contribution (subject to the IRC § 170(b) adjusted-gross-income limits — generally 60% of AGI for cash, 30% for appreciated public stock), and then recommend grants to qualified 501(c)(3) operating charities over time.
Why DAFs dominate: (1) the deduction is taken immediately at full fair-market value, even for appreciated stock (no capital-gains recognition); (2) administration is trivial — the sponsor handles the 990- equivalent, the grant-making paperwork, and the investment of undistributed balances; (3) minimums are low (Fidelity Charitable requires $0 to open); (4) family branding is allowed ("The Smith Family Fund"); (5) the grant pipeline is flexible — you can fund the DAF in a high-income year and recommend grants for years.
Where DAFs fall short: (1) no direct control — the sponsor has final legal authority over grants (though in practice sponsors follow donor recommendations almost always); (2) no direct benefit to the donor (cannot pay for a gala ticket or tuition out of the DAF); (3) grants only to qualified public charities, not to private operating foundations or to individuals; (4) some families eventually outgrow the DAF and want the control of a private foundation (see PF option); (5) anti-grant-to-self rules — DAF sponsors will not honor a grant to a charity where the donor gets a tangible benefit.
Tagged 🟢 — opening and funding a DAF is genuinely DIY. A visit to Fidelity Charitable, Schwab Charitable, Vanguard Charitable, or your local community foundation is enough for most families.
State-specific notes
DAFs are sponsored by public charities and governed by the Pension Protection Act of 2006 additions to IRC (§§ 4966-4967). Contributions are deductible subject to AGI percentage limits of § 170(b).
Virginia conforms to federal charitable-deduction rules. No state-level DAF-specific filing. The Community Foundation for Northern Virginia and Richmond Community Foundation both operate regional DAF programs.
West Virginia conforms to federal charitable-deduction rules. The Greater Kanawha Valley Foundation and the Parkersburg Area Community Foundation operate regional DAF programs.
DAFs are governed by federal tax rules (IRC §§ 170(b), 4966) with no Alabama-specific statutory overlay. Alabama allows a state income-tax charitable deduction that tracks the federal itemized deduction; contributions to a DAF qualify at the time of the gift to the sponsor, not when grants are made to operating charities. Alabama's flat 5% top rate means state-level tax savings are modest versus high-tax states.