A donor advised fund (DAF) is a great way to give to charity

Donor-advised funds—or DAFs—are a flexible, low-cost way to support causes you believe while receiving important tax benefits. Technically, DAFs are accounts offered by a sponsoring organization. You as the donor contribute cash, appreciated securities or even tangible assets like real estate or jewelry.

You can make a single contribution or multiple contributions over time. When you do, you receive an immediate, maximum tax benefit. Then, whenever you wish, you recommend grants from the DAF to the charity of your choice.

One of the best features of donor-advised funds is their flexibility: Unlike a personal charitable foundation, DAFs don’t require you to make a minimum grant each year.

And those funds don’t just sit in your account—they’re invested and have the opportunity to grow over time, which means more money for your charities. Just to be clear, once you donate funds, they do not come back to you.

Do

Do shop around

Compare account minimums, fees, investment options and assets accepted. All of these can vary widely, especially among community foundations and single-issue sponsors. Schwab and Fidelity offer some of the best terms, with minimums as low as $5,000 and an annual administrative fee of 0.6% on accounts $500,000 and under.

Do practice tax planning

Since you can make ongoing contributions to your DAF, you’re able to use it as a tax shelter each year if desired. Be sure to plan proactively so that you make the contributions of your choice at the right time to receive the proper tax benefit.

Do make it a family affair

Invite your children and grandchildren to help select grantees. This collaborative process will not only help younger family members learn about philanthropy and financial responsibility, but it can help knit families closer together.

Do know your charities

Consider giving your time, as well as your money, to the nonprofit organizations you support. Your involvement can multiply the benefit to your recipient. Then you can recommend grants from the DAF to the charity of your choice.

Don't

Do not over-contribute

It’s natural to get excited about minimizing taxes or contributing to worthy causes. But remember that once your money is in a DAF, it’s gone. If you have $200,000 to contribute, that’s great—just make sure doing so won’t hamstring your personal finances. Create a budget that works with your personal finances, and stick to it.

Do not register multiple account holders

When multiple individuals are empowered to recommend grants, it can become hard to keep track of where the money is going. It can also increase the likelihood of conflict in selecting charities to donate to.

Do not contribute blindly

While you recommend grant recipients, the charitable fund technically approves and disburses the grants. So make sure that a specific cause you want to contribute to is on the sponsor’s list of approved charities. By the way, if it’s not, you can request that it be added. Again, do so before you contribute.

Do not give impulsively

Organizations of questionable integrity will try to catch you off guard with solicitations. Having a deliberate plan about which groups to give to, and how much to give them, will help you stay within your charitable budget and make more of a difference for the causes you believe in most.