What's a Donor-Advised Fund? (And Should You Use One?)

How a Donor-Advised Fund Works

Suppose you are preparing to sell a business, a piece of real estate, or another asset that has significantly increased in value.

Selling the asset yourself could result in a substantial capital-gains tax. However, you may be able to contribute the asset to a donor-advised fund before the sale.

Because the contribution is an irrevocable charitable gift, you may receive a tax deduction based on the asset’s value and potentially avoid capital-gains taxes that otherwise would have been due. That can allow more money to be directed toward charitable purposes.

Once the asset is sold within the donor-advised fund, the proceeds can be granted to ministries immediately or invested for potential growth while you determine where to give.

When you are ready, you recommend a grant—perhaps $10,000 to your church, a missions organization, or another qualified charity. The sponsoring organization verifies the recipient and sends the gift either in your name or anonymously.

The Benefits of a Donor-Advised Fund

Donor-advised funds have become a popular charitable-giving tool because they combine flexibility with professional administration.

1. Simpler Record-keeping: Instead of collecting tax receipts from numerous organizations, you generally receive one receipt for your contribution to the donor-advised fund. You can then manage and track your charitable grants in one place.
    
2. Potential Tax Benefits: You generally receive the charitable deduction when you contribute to the fund, rather than when grants are later distributed. Contributing appreciated assets may also help reduce or eliminate capital-gains taxes, allowing more of the asset’s value to support ministry. Because tax situations vary, consult a qualified tax professional before making a significant contribution.
    
3. Flexibility in Giving: You can contribute now and recommend grants later. This allows you to practice generosity while taking time to pray, research organizations, and discern where the resources may have the greatest impact.
    
4. Legacy Planning: Many donor-advised funds allow you to name successor advisers, such as children or grandchildren. This can give your family an opportunity to continue recommending grants and participating in a legacy of generosity.
    
5. Greater Focus on Ministry: Because the sponsoring organization manages the administrative work, you can spend more time evaluating ministries, praying about opportunities, and discerning where God may be directing your giving.

Important Limitations to Consider

Although donor-advised funds can be helpful, they are not appropriate for every situation.

1. Contributions Are Irrevocable: Once an asset is contributed, the gift is complete. You cannot later withdraw the money for personal use. For that reason, you should never contribute resources that may still be needed for living expenses, emergencies, debt repayment, or other financial responsibilities.
    
2. Grants Must Go to Qualified Charities: Grants generally may only be made to eligible, IRS-approved charitable organizations. A donor-advised fund cannot normally be used to give money directly to an individual or to support political candidates.
    
3. Giving Can Be Delayed: Money can remain in a donor-advised fund for years before it is distributed. While that flexibility can be useful, it can also delay meaningful charitable impact. At FaithFi, we encourage believers to view a donor-advised fund as a tool for timely and intentional generosity—not as a place to indefinitely accumulate charitable assets. A donor-advised fund should help organize your generosity, not postpone it. Ministries and people have real needs today, and resources already committed to charitable purposes should ultimately be put to work.

Is a Donor-Advised Fund Right for You?

A donor-advised fund may be especially helpful when you:

• Regularly give to several ministries or charities
• Want to contribute appreciated assets
• Expect an unusually high-income year
• Are preparing to sell a business, property, or investment
• Want to involve your family in long-term generosity
• Prefer a simpler way to organize charitable giving

However, the strategy should always serve the greater purpose of faithful stewardship.

The goal is not simply to reduce taxes or create a more efficient financial plan. It is to use what God has entrusted to us in ways that reflect His priorities, care for others, and advance the work of the gospel.

Continue Growing in Biblical Stewardship

On Today’s Program, Rob Answers Listener Questions:

• I’m debt-free and have $100,000 in savings. Rather than leave it sitting in cash, how should I think about putting that money to work?
• I’ve been paying $100 a month toward a hospital bill, but my statements aren’t showing the payments or reducing the balance. I’ve called twice without getting a response. What should I do next?
• My son wants me to join a pooled investment account with him, some friends, and family members, and even roll my 401(k) into it. What are the risks of investing through a joint account like this, and what tax or penalty issues could come with moving money out of my 401(k)?
• I’m encouraging my adult children to start Roth IRAs, even with small contributions. Where can they open accounts with low fees, and would a resource like Sound Mind Investing be a good place to start learning?

Resources Mentioned:

• Faithful Steward: FaithFi’s Quarterly Magazine (Become a FaithFi Partner)
• National Christian Foundation (NCF)
• Sound Mind Investing (SMI)
• Betterment | Schwab Intelligent Portfolios®
• FaithFi Field Guide: How Much Money is Enough? 
• Our Ultimate Treasure: A 21-Day Journey to Faithful Stewardship by Rob West
• Wisdom Over Wealth: 12 Lessons from Ecclesiastes on Money
• Look At The Sparrows: A 21-Day Devotional on Financial Fear and Anxiety
• Rich Toward God: A Study on the Parable of the Rich Fool
• Find a Certified Kingdom Advisor® (CKA)
• FaithFi App