If you’re charitably inclined and also sitting on appreciated stocks, mutual funds, or ETFs in your brokerage account, you have an incredible opportunity: you can give to causes you care about and reduce your tax bill at the same time. 

One of the smartest ways to do this is by using a Donor-Advised Fund (DAF).

I want all investors to realize how much flexibility and tax-efficiency this simple tool provides. Here’s how it works, and why it’s better than just writing a check or even giving appreciated securities directly to a charity.

 

Why Donate Appreciated Securities At All?

First, a quick refresher.

When you donate shares of stock (or other investments) that have gone up in value, you avoid paying capital gains tax on the growth and you can take a charitable deduction (if you itemize) for the full fair market value. Now, with the current standard deduction being so high, most people don’t itemize. They take the standard deduction. However, under new taw law, you can likely take another $2,000 itemized deduction from charity on top of your standard deduction! Just beware of certain income limitations.

However, for the remaining of the blog, I am going to ONLY TALK ABOUT THE TAX BENEFIT OF NOT REALIZING THE CAPITAL GAIN, since most people do not itemize.

Remember, if you sell a stock yourself and donate the cash, you may owe tax on the gain. If you gift the shares to a charity, no one owes the tax. 

 

Why Not Just Give The Shares Directly?

You can donate appreciated shares directly to most larger charities, but here’s the catch: 

  • Many small and mid-sized charities don’t have brokerage accounts or can’t accept in-kind stock donations easily. You have to track down the contact person, they have to dig through their files and call “their guy” to remember what the account information is, and a series of other calls and confirmation have to happen to ensure the gift is appropriately received and documented. 
  • You’re locked into the timing of your gift. If you have a stock priced at a high and you want to lock in the gains, but you’re not quite ready to decide what charity to gift to or want to spread the timing of the gift out, you’re out of luck. 

In my opinion, that’s where the Donor-Advised Fund can truly shine.

 

Why Would a Donor-Advised Fund Make It Better?

A DAF is essentially your own personal charitable account, held at a sponsor like Fidelity Charitable or a local community foundation (shout out to the Findlay Hancock County Community Foundation).

When you transfer appreciated securities into your DAF, here’s what happens: 
✅ You get an immediate charitable deduction (if you itemize) for the full value of the shares on the day you donate them. Even if you don’t itemize, with the new tax code, you likely quality for the extra $2,000 charitable deduction.
✅ You avoid realizing any capital gains on the appreciation.
✅ The funds can stay in the DAF until you’re ready to decide which charities to support – potentially even years later.
✅ The funds can even grow tax-free in the DAF in the meantime, potentially increasing what you can give away. 

This means you can take advantage of market highs to donate the most highly appreciated shares now but take your time thoughtfully granting the funds to charities over time. 

 

How To Keep Your Portfolio Balanced

One common concern is: “But if I give away shares, won’t my portfolio get out of balance?” 

Here’s the smart solution:

  • Identify appreciated shares in your brokerage account to donate to your DAF.
  • Donate those shares in-kind into your DAF. 
  • Then, use the cash you would have given to the charities this year to instead buy new shares in your brokerage account to replace what you donated. 

By replacing the shares, your portfolio stays fully invested and properly allocated  but the new shares you bought have a higher cost basis. Over time, this reduces your unrealized gains and keeps your future tax liability lower.

So here’s what you get:

  • The immediate deduction today.
  • The satisfaction of supporting causes you care about.
  • A more tax-efficient portfolio going forward. 

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Donor Advised Funds are one of my favorable financial planning “hacks” and they are accessible to just about anyone. You don’t have to be rich or give away 10s of thousands of dollars to charity to make it worth it. Talk to your financial advisor or local community foundation representative to see if it might be the right option for you!