For many people, charitable giving is an important part of who they are – but when it becomes part of a broader wealth plan, it can get complex fast. Between managing tax bills, coordinating estate plans and timing your gifts correctly, it’s hard to know which strategy makes the most sense for you. A donor-advised fund could be a solution.
What Is a Donor-Advised Fund – and How Does It Work?
At its core, a donor-advised fund is a charitable investment account that allows you to contribute assets and support the organizations that matter most to you. It is made up of three key players:
The donor (you!): This person opens the fund by making the first deposit. You can contribute a wide variety of assets to donor-advised funds, like cash, stocks, bonds, private company stock and even life insurance. The initial contribution is all you need to set up the fund – there are generally no separate account-opening fees.
The sponsor (also called the supporting organization): Once you make a deposit into a donor-advised fund, the sponsor takes legal ownership of the assets. Then, they invest them and ultimately make the donations to qualified nonprofits. There are three main kinds of supporting organizations:
Community foundations: Regionally aligned public charities that focus on managing charitable funds to support local nonprofits.
National charitable sponsors: Large organizations connected to wealth management companies that offer donor-advised funds.
Mission-driven public foundations: Organizations connected to a particular mission, like a hospital or university.
Different supporting organizations will charge varied fees and require unique minimum contributions, so work with your Baird Financial Advisor to determine which sponsor may be the best fit for your situation. Once the fund is established, the sponsor has final authority over how the assets are invested – but you and your advisor can make recommendations.
The recipient: Ultimately, you can support any IRS-qualified public charity with assets from your donor-advised fund – but since the sponsoring organization technically has legal ownership of the assets, they get the final say. Typically, they will donate to your recommended charities, but it’s not guaranteed.
What Are the Benefits of a Donor-Advised Fund?
At the heart of a donor-advised fund is the charitable mission: Because assets in the fund can be invested and potentially grow tax-free before being donated, you may increase the impact of your charitable gift. But along with that, donor-advised funds offer unique benefits for your own tax and estate plan:
An immediate tax deduction: When you put assets into a donor-advised fund, you can take a tax deduction that same year – even if the assets aren’t donated to charity until later. Why is this helpful? Consider someone who typically donates $2,000 per month to the Red Cross. Instead of deducting $24,000 each year, that person could pre-pay five years of donations to a donor-advised fund – and take the $120,000 deduction in a single year. This strategy is called “bunching,” and allows you to take larger itemized deductions one year and potentially take the standard deduction for the next. Keep in mind, though, that you can’t get back any contributions made to a donor-advised fund – so make sure you have a comfortable amount of liquidity before donating a larger amount.
Lower capital gains tax: When you donate appreciated assets directly to a donor-advised fund, you can avoid paying capital gains tax on them that would apply if you sold the asset first. Plus, if you donate assets that are worth more than what you paid for them, you can often deduct the current market value of the asset instead of what you originally paid for it.
No distribution requirements: Unlike private foundations, donor-advised funds don’t require you to give money away on a fixed schedule. This means you can contribute assets when it makes sense for you, then support charities over time.
Simplified giving: Instead of having to track down multiple donations and tax receipts on a regular basis, you can create a relationship with one donor-advised fund sponsor – and manage your giving from a single account.
Anonymity: If keeping your charitable donations anonymous is important to you, donor-advised fund sponsors are not required to disclose information about their donors.
A reduced taxable estate: In 2026, individuals with estates over $15 million (or families with over $30 million) may be subject to federal estate taxes – and some states impose their own estate taxes as well. However, any assets you contribute to a donor-advised fund no longer count as part of your estate, and can reduce your estate tax liability.
Legacy planning: With a donor-advised fund, you can name your children or other heirs as successor advisors – allowing them to make recommendations on investing strategies and receiving organizations after you’re gone. Alternatively, you can create an endowment plan, and designate a certain percentage of the donor-advised fund to a particular organization, helping move your charitable legacy well into the future.
By thoughtfully using a donor-advised fund within your wealth plan, you can enhance both your charitable impact and your tax efficiency. Work with your Baird Financial Advisor team to determine how this strategy could fit into your overall wealth plan and lasting legacy.
Editor’s Note: This article was originally published December 2020 and was updated February 2026 with more current information.
This information has been developed by a member of Baird Wealth Solutions Group, a team of wealth management specialists who provide support to Baird Financial Advisor teams. The information offered is provided to you for informational purposes only. Robert W. Baird & Co. Incorporated is not a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action. The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.
