Contributed by: Timothy B. Smith, CFP

Charitable giving is a core value for many high-net-worth families, corporate executives, and small business owners. Whether driven by a desire to leave a legacy, engage the next generation in philanthropy, or simply support causes they care about, strategic charitable planning allows individuals to maximize their impact while taking advantage of significant tax benefits. One tool that has become increasingly popular in this space is the Donor Advised Fund (DAF).

At Granite Harbor Advisors, we work with clients to ensure their charitable intentions align with their broader financial and estate planning goals. When structured thoughtfully, Donor Advised Funds can serve as a highly effective vehicle to create meaningful impact while preserving and growing wealth.

What Is a Donor Advised Fund?

A DAF is a giving vehicle that allows donors to make a charitable contribution, receive an immediate tax deduction, and recommend grants to charities over time. Think of a DAF as a personal charitable savings account:

• You contribute assets into the DAF, such as cash, stocks, or even privately held business interests.
• The assets are invested, allowing the fund to potentially grow tax free.
• You recommend grants to IRS qualified public charities when you are ready to support specific causes.

DAFs are often appealing because of their simplicity, flexibility, and immediate tax advantages. However, to truly maximize their benefits, they must be structured strategically.

Key Benefits of Donor Advised Funds

1. Immediate Tax Deduction

When contributing to a donor advised fund, donors receive an immediate tax deduction for the value of their gift. The deduction can be substantial depending on the type of asset contributed:

• Cash gifts: Deduct up to 60% of your adjusted gross income (AGI).
• Appreciated securities or other assets: Deduct up to 30% of AGI while avoiding capital gains taxes.

This makes DAFs particularly useful in years of high income or during liquidity events, such as the sale of a business, when tax liabilities are elevated.

2. Flexibility in Timing and Giving

Unlike direct charitable donations, contributions to a DAF allow donors to “front load” their giving. For example:

• Make a large, tax deductible contribution in one year to offset income, but distribute grants to charities over several years.
• Fund your DAF during a high income year and maintain a steady giving schedule during retirement or years with lower income.

This flexibility allows you to decouple the timing of the tax benefit from the actual distribution of charitable funds.

3. Tax-Free Growth of Assets

Once assets are placed in a DAF, they can be invested in a variety of vehicles, including public market funds, custom investment portfolios, or even alternative assets, depending on the custodian. Any growth within the fund is tax free, increasing the overall impact of your charitable dollars over time.

4. Privacy and Control

Unlike private foundations, donor advised funds allow for anonymous giving, if desired. This can be particularly important for donors who prefer to keep their charitable activities discreet.

At the same time, donors retain control over when and where the funds are distributed, offering a level of involvement that appeals to many families.

Strategies to Maximize the Impact of Your Donor Advised Fund

1. Contribute Appreciated Assets

One of the most effective ways to fund a DAF is by donating appreciated securities, such as publicly traded stock or business interests. By gifting assets instead of selling them:

• You avoid capital gains tax on the appreciation.
• You receive a charitable deduction for the full fair market value of the asset.

For business owners anticipating the sale of their company, contributing a portion of ownership to a DAF before the sale can result in significant tax savings while supporting charitable goals.

2. Integrate DAFs Into Estate Planning

DAFs can be a powerful estate planning tool, particularly for families looking to create a legacy of giving. Consider the following strategies:

• Name your DAF as a beneficiary in your will, trust, or retirement accounts to avoid estate taxes on those assets while continuing to support charitable causes.
• Engage the next generation by involving children or grandchildren as advisors to the fund, fostering a culture of philanthropy within the family.

3. Leverage a DAF Alongside a Private Foundation

For families with existing private foundations, DAFs can provide complementary benefits. While private foundations offer greater control and visibility, they also come with increased administrative burdens and annual payout requirements. A DAF can provide:

• Greater privacy for anonymous gifts.
• Simplified administration for smaller, recurring donations.
• Increased flexibility to meet charitable goals during years when the foundation cannot distribute as much.

4. Create an Investment Strategy for Your DAF

To maximize the growth and long-term impact of your DAF, align its investment strategy with your broader financial plan. Granite Harbor Advisors provides clients with access to both public and private market investments, enabling tailored strategies that meet your risk tolerance and giving horizon.

Partnering With a Trusted Advisor

While DAFs are straightforward to establish, thoughtful planning requires ensuring they are structured to align with your financial goals. At Granite Harbor Advisors, we specialize in helping families and business owners navigate the complexities of wealth and philanthropy.

Our team of professionals can guide you in:

• Selecting the right assets to contribute.
• Crafting tax efficient funding strategies during liquidity events.
• Designing a giving plan that involves your family and extends your legacy.
• Creating an investment strategy that grows your charitable dollars for maximum impact.

Final Thoughts

Donor Advised Funds offer an excellent opportunity to simplify your giving, maximize your tax benefits, and make a meaningful impact over time. When integrated with your financial and estate plan, a DAF can serve as a cornerstone of your charitable legacy, helping you achieve both philanthropic and financial goals.

At Granite Harbor Advisors, we understand that thoughtful charitable planning goes beyond dollars and cents. It’s about leaving a lasting legacy and creating positive change for the causes that matter most to you. Whether you are exploring donor advised funds for the first time or seeking to optimize an existing plan, our team is here to help you structure your giving for maximum impact.