When working with high net worth families, tax efficient (and time efficient) charitable giving presents an often-overlooked planning opportunity. Quite often, families make their charitable contributions via cash, check or credit card. There may be more tax-advantaged ways to donate, and these techniques can be even more valuable given the recent changes to the tax code. For families that typically donate $5,000 a year or more to charity, utilizing a Donor Advised Fund may provide an easy, inexpensive and tax-efficient method.
Understanding the Tax Benefits
Under the tax laws that went into effect in 2026, $10,000 of charitable contributions can yield meaningful federal tax deduction and savings (a $5,000 tax deduction and $1,850 in reduced taxes assuming a 37% marginal tax rate).
Did you know that the same $5,000 in contributions can be far more valuable? By gifting long-term appreciated securities, in lieu of cash, you can significantly increase the tax benefit of your charitable contributions. Gifting low-basis securities also removes the capital gains tax that you would otherwise pay when you sold those securities. Sticking with the above example, if you gift $10,000 in securities with a basis of $4,000, you would no longer be responsible for $1,440 in long term capital gains tax (assuming 24% federal tax rate). When combined with the $1,850 tax savings from above, your $10,000 donation of appreciated securities could produce an all-in tax savings of $3,290. The savings can be even higher when accounting for state income tax, depending on your residency. For clients with low-basis stock, this may be a great way to maximize the impact of your charitable giving. If a client wanted to maintain the same position (e.g. owning Nvidia stock) they could again buy the same amount of stock in cash which would re-establish their basis at the appreciated share price*.
Using a Donor Advised Fund
While the tax benefits of gifting appreciated securities are clear and significant, there are some operational challenges to consider. Certain charities are unable to accept gifts of appreciated securities. In addition, gifting to several charities (or charitable events) throughout the year can require significant time and effort to find and transfer appreciated securities in the exact amounts. A donor advised fund (DAF) solves these inefficiencies by allowing you to aggregate your security transfers at once into a separate charitable account. Typically, you would fund your total expected charitable contributions for a given period of time (1 year or multiple years) in advance. You would receive a tax deduction in the tax year you make the contribution. You have now created what is essentially a charitable “wallet,” allowing you to recommend grants to any recognized charitable organization.
Funds do not need to be fully dispersed in any given year; in fact, many clients “bunch” a few years’ worth of giving upfront in one year. This allows families to be more strategic in their annual tax planning especially in light of the tax code changes that went into effect in 2026 that, for families that itemize their tax deductions, limits your charitable deduction to the extent they exceed 0.5% of adjusted gross income (AGI). By bunching multiple years of planned charitable gifts into a contribution to your DAF this year (or any given year), you can reduce the impact of this 0.5% of AGI floor. This helps maximize the overall tax impact of your charitable giving.
Conclusion
Effective planning creates a significant opportunity for high net worth families to maximize the impact of their charitable giving. By gifting appreciated securities, and leveraging a Donor Advised Fund to do so, can be a powerful strategy in the:
- Ability to maximize the tax benefits of giving by 1) excluding capital gains and 2) leveraging bunching to effectively manage the tax deductibility of charitable giving (particularly after the recent changes to the tax code)
- Simplicity of giving – an efficient, online process
The examples included here are hypothetical for illustration purposes only.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation.
Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes.