Contributed By: Tim Smith, CFP
New IRS rules on donor-advised funds could reshape charitable giving strategies for high net worth families.
Philanthropy has long been a cornerstone of wealth stewardship among high net worth families. Whether motivated by a commitment to legacy, community impact, or tax efficiency, charitable giving plays a critical role in many estate and financial planning strategies. One of the most popular tools for achieving these goals has been the donor-advised fund (DAF), offering donors flexibility, administrative simplicity, and meaningful tax advantages.
However, the IRS recently proposed new rules that could significantly alter how DAFs are used, especially for sophisticated givers. These changes raise important questions about the future of charitable planning and may prompt families, advisors, and institutions to reevaluate the way they structure giving strategies.
Understanding the Role of Donor-Advised Funds
Before addressing the proposed changes, it’s important to understand the traditional appeal of DAFs. These vehicles allow donors to make a charitable contribution, receive an immediate tax deduction, and then recommend grants to qualified charities over time. This decoupling of the tax deduction from the timing of the gift gives donors the flexibility to be both tax efficient and intentional with their philanthropy.
DAFs can be especially attractive in years of unusually high income or liquidity events, such as the sale of a business or vesting of significant equity compensation. They also offer a streamlined alternative to establishing a private foundation, avoiding the administrative burden and cost while preserving many of the same benefits.
What the IRS is Proposing
The proposed IRS regulations—first introduced in late 2023 and further comment and revision in 2024—seek to bring more definition and control to how DAFs operate. While the regulatory language is highly technical, several key provisions stand out:
- Expanded Definition of DAFs
- The IRS is proposing a broader definition of what constitutes a DAF. This includes arrangements where donors retain advisory privileges, even informally, over how funds are distributed. This could potentially include certain field-of-interest funds or arrangements with community foundations, depending on how the rules are finalized.
- Strict Timing on Charitable Deductions
- Under the proposed rules, donors would only be able to take a deduction when the DAF itself no longer retains any advisory control over the funds. This could complicate strategies where deductions are taken in one year and grants are made in subsequent years, as is commonly done to manage tax exposure.
- Rules Targeting Private Benefit and Avoidance
- The regulations seek to clamp down on practices where donors use DAFs to fulfill personal pledges or influence grants in ways that confer indirect benefits to themselves or family members. This includes paying for event tables, scholarships with donor influence, or grants that fulfill legally binding commitments.
These measures reflect the IRS’s concern that some donors may be using DAFs to delay charitable distributions or maintain control in ways that deviate from the spirit of philanthropic tax incentives.
Strategic Implications for High Net Worth Donors
For high net worth families who rely on DAFs as part of their philanthropic, tax, and estate planning, these proposed regulations could mark a turning point. The landscape is still evolving, but several implications are already clear.
- Greater Scrutiny Will Require Greater Precision: The days of using DAFs as loosely-administered giving accounts may be numbered. As definitions tighten, donors will need to ensure their giving vehicles are structured properly and in full compliance—not just with the letter of the law, but its evolving intent. This could involve revisiting agreements with sponsoring organizations and clarifying advisory privileges to avoid unintentional violations.
- Timing of Contributions May Need Adjustment: If the deduction is tied more closely to the actual disbursement of funds, rather than the contribution to the DAF, donors may need to accelerate their grantmaking timelines. This could reduce the ability to build a long-term charitable endowment through a DAF and limit the role of DAFs as a tax mitigation tool in liquidity years.
- Alternative Structures Could Gain Appeal: As DAFs become more regulated, some families may consider re-evaluating private foundations or charitable LLCs, especially if control and multi-generational involvement are key objectives. While these options come with more complexity, they may offer better alignment with the family’s philanthropic mission under a new regulatory framework.
- Importance of Coordinated Planning Will Increase: Perhaps most importantly, these changes highlight the need for coordinated planning between tax professionals, estate attorneys, and wealth advisors. Philanthropy does not exist in a vacuum—it intersects with income strategy, investment planning, and legacy goals. A thoughtful, holistic approach will be essential to preserve both compliance and impact.
A Shifting Regulatory Environment
It’s worth noting that the proposed rules are not yet final. The Treasury Department is soliciting feedback, and there may be revisions before formal adoption. Nonetheless, the direction is clear: regulators want to ensure that charitable deductions are paired with genuine charitable intent and timely disbursement.
This aligns with broader public and political scrutiny of tax-advantaged giving. As the philanthropic landscape evolves, it will be increasingly important for donors to demonstrate both transparency and a commitment to actual charitable outcomes. For families who view philanthropy as a central expression of their values, this should not be seen as a threat—but rather as an opportunity to clarify purpose and elevate strategy.
The Role of Trusted Advisors
In moments of regulatory change, uncertainty often gives rise to both risk and opportunity. For families with substantial assets and multi-dimensional goals, now is the time to reassess charitable plans. The objective is not just to comply with new rules, but to reaffirm that giving strategies are aligned with long-term intentions and executed in the most effective manner.
At Granite Harbor Advisors, we emphasize this intersection of financial planning, estate strategy, and philanthropic vision. Our clients value the ability to navigate complex structures, adapt to changing rules, and implement strategies that reflect both technical sophistication and deeply held values.
Whether reviewing a current DAF, exploring private foundation options, or evaluating new vehicles that combine tax efficiency with family involvement, we believe every family’s giving plan should reflect a clear sense of purpose and a commitment to long-term impact. The IRS’s proposed changes are a reminder that philanthropy, like wealth itself, benefits from active and intentional stewardship.