Rule Changes Could Make This Charitable Giving Vehicle Even More Popular  

It’s still better to give than receive, even though giving to charities has grown more complicated lately. 

Some big new rules set by the One Big Beautiful Bill Act officially kicked in this year, including a charitable deduction floor for itemizers and reduced benefits for high-income donors. The policy changes are just one reason why advisors are fielding more questions than ever about the best way to structure gifts as part of the overall estate planning strategy, especially about donor-advised funds, thanks to their “give now, decide later” flexibility that lets clients move assets off the balance sheet without having to immediately deploy them to a charity. That interest has helped DAF assets grow to top $328 billion, according to IRS data, and all signs are that giving via DAFs will accelerate further as knowledge of the vehicle grows among advisors and clients alike. 

“Advisors who want to work with high-net-worth, and definitely ultra-high-net-worth, clients need to have competency in philanthropic planning,” said Paul Caspersen, a program director at the American College of Financial Services. “Donor-advised funds are an important tool in the estate planning context, but they also involve highly complex planning considerations.”

A Tool for the Moment

Under the One Big Beautiful Bill Act, itemizers can only deduct charitable contributions that exceed 0.5% of their adjusted gross income, effectively making smaller, ad-hoc annual gifts less tax-efficient. Because of this floor, clients may want to consider consolidating multiple years of planned charitable contributions into a single large gift that helps clear the floor and maximizes tax savings.

The DAF vehicle is attractive in this environment because bunching doesn’t mean clients have to stop supporting their favorite charities annually, Caspersen explained. Instead, bunching qualifies the taxpayer for an immediate tax deduction in the year of their contribution, and they can then recommend grants to qualified nonprofits over time. 

While most will find DAFs helpful in the estate planning process for charitably minded clients, it’s critical for advisors to know (and follow) the law when funding them, Caspersen warned. Some considerations include: 

• Contributions are fully irrevocable, and though the client can request the DAF sponsor take certain actions, there’s no legal guarantee of follow-through. 
• Clients cannot receive more than incidental benefits in return for contributions, and they cannot use funds to fulfill legally binding personal pledges.
• Likewise, clients cannot fund a DAF directly using a qualified charitable distribution from an individual retirement account.

Back to School. This is just scratching the surface of what advisors need to know about DAFs. That’s why the American College is launching a DAF-focused certification this fall to complement its existing wealth management curriculum, which also includes the Chartered Advisor in Philanthropy designation, according to Caspersen. “We believe this is the perfect time for this program,” he said.