This is a YouTube video titled "Donor-Advised Funds (DAFs) - WCI Financial Bootcamp" created in May 2025. It features a detailed monologue explaining donor-advised funds, their tax benefits, convenience, anonymity, and practical considerations for charitable giving. The content is educational and financial in nature, presented as a podcast-style financial boot camp episode without multiple speakers or conversational interaction.
This is the White Coat Investor podcast Financial Boot Camp, your fast track to financial success. Let's talk about donor advised funds or DAFs. What is a DAF? This is a vehicle where you can take money and put it in the vehicle. And the moving of the money from your brokerage account to this donor advised fund is permanent, Right? You can't take the money back out of the donor advised fund and spend it on whatever you want, but it's also considered a charitable contribution. So if you're taking charitable contribution deductions on your taxes, just putting the money into this vehicle gives you that same deduction whether you actually give it to a charity or not. You basically committed to give it to a charity eventually, so you get the deduction. Now that's a donor advised fund. While it's within the donor advised fund, the money can be invested because it's a charitable thing. You don't pay any taxes and neither does the DAF or the future charities pay any taxes on the earnings while it's in that account. And then whenever you want to take it out of that account, you can recommend a distribution, a grant to the manager of the daf. You know, please give this to the United Way or some other charity. And they generally follow your instructions. You know, as long as it's a legitimate charity, they'll just give whatever money you say out of the DAF to your favorite charity. Now, you don't get another tax deduction when it's distributed from the daft, but you get the original one. Now, like any donation to charity, the best thing to donate is appreciated shares you've owned for at least a year. And the reason why is because when you donate it to charity, including a daf, you don't pay taxes on the capital gains. And when it's sold by the charity or the daf, neither does the charity or the daf. Nobody pays the capital gains. The government just doesn't get them. So there's no capital gains taxes. Plus you get the entire value of the contribution as a charitable deduction. This is really powerful, tax wise. Now, should you do this just to lower your taxes? Absolutely not. Right? You do not. Almost always it's possible to come out slightly ahead depending on, you know, how much you're going to end up paying in capital gains. But you generally don't come out ahead donating to charity. Right? If you give $100 to charity, you might get a tax deduction that ends up being worth $35 off on your taxes. You're not coming out ahead that way. So don't do this just to lower your taxes. You've got to actually have some sort of charitable desire to donate to charity. If you don't want to support the mission of a charity, don't give money to a charity, including via a daf. But if you do, a DAF is a super convenient way to do it for several reasons. The first one is you don't have to distribute to the charity at the same time you get the charitable deduction, right? I've called this the jerk move in the past, right? You get all the benefit of donating to charity, the charity gets no benefit. Hopefully you don't leave it in the daft too long before the charity starts getting that benefit. But that is one, one thing that people really like about DAFs that can be really useful, right? If you're in a super high tax bracket this year and you're going into retirement or you just sold a big business or something, super high tax bracket, you can get your deduction while you're in the high tax bracket even though the charity gets the money later. So that's a real benefit there. The bigger benefits. I see. And why pretty much all of our charitable giving is done through a DAF now is convenience, right? All I have to keep track of, tax wise, is usually one donation a year to one charity. That's it. That's all I have to keep track of for my tax paperwork. That's way easier than what we used to do when we donated money to multiple charities. And especially if we're donating appreciated securities in kind donations, we would have to keep track of those. And every one of them was a little bit different how they worked with them. Some small charities couldn't handle that sort of a donation. Well. Well, your daft can handle that donation, right? And they can handle the small charities as well. So that's a real benefit. The other benefit is anonymity. And until you've given a lot of money to a lot of charities, you don't realize what a benefit this is. But if you give money to somebody, say Doctors Without Borders for the next 10 years, four or five times a year, you get a glossy pamphlet in your mailbox from Doctors Without Borders trying to get you to give more money to them. And you know, I'm not gonna give any opinion on this particular charity and its mission, but I do know it spends a lot of money on marketing to get more donations and I don't want it to do that if I'm giving it money to support you. Know, medical care for people in war zones. I want the money to go to medical care for people in war zones. I don't want it to go to marketing to me. I know about the charity. If I want to give more money to them, I'm gonna give more money to them. With a daf, you can give anonymously. They don't know I gave the money. I don't get on their charity porn list, and they don't fill my mailbox with these glossy $5 pamphlets five times a year. And so that's a real great benefit of a donor advised fund. More convenient, simpler paperwork, anonymity, potential delay between getting your charitable deduction and giving the money to the charity. Those are the main benefits. So obviously, if you're not itemizing your deductions, if you don't use Schedule A, if you just take the standard deduction, donating to charity is not helping your tax situation. And donating to a DAF isn't going to help your tax situation either in that sort of a situation. But if you are itemizing, you're going to get a tax break, just like you would if you give it directly to the charity and probably a lot less hassle. What DAF should you use? Well, we've used the Vanguard Charitable, which is Vanguard's daf. It's relatively low cost. I think they charge something like 0.6 or 0.7% for the first few hundred thousand dollars worth of assets. So it's an AUM fee. But the truth is that's probably less.
