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What Is a Carry Forward Charitable Deduction?

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When a donor makes a charitable gift to a qualified organization, the IRS may place a limit on how much of the donation can be deducted for that tax year. Generally, the deduction limit is capped at 50% of your adjusted gross income, but certain situations may result in different deduction limits. With IRS deduction limits in place, donors whose contributions exceed specific AGI thresholds may find that portions of their charitable gifts cannot be applied to their taxes. In cases like these, a carry forward charitable deduction, also known as a carryover, can be used.

A carry forward charitable deduction is a technique that allows a donor to apply the amount exceeding the limit to their taxes for up to five subsequent years. For families engaged in purpose-driven financial planning, this rule can be a practical tool to help support the preservation of potential tax benefits.

At 5280 Associates, our team of financial professionals works with clients in Denver and beyond to integrate charitable giving into a broader tax and estate strategy. Understanding this carryover rule is one of the first steps toward giving more intentionally.

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The IRS limits how much of your charitable contributions you can deduct in any single tax year, based on your Adjusted Gross Income (AGI). When your generosity exceeds those limits, the IRS does not simply disallow the remainder. Under Internal Revenue Code Section 170(d), the excess amount is treated as a charitable contribution carry forward, meaning it can be applied to each of the five tax years that follow.

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AGI Thresholds That Trigger a Carryover

The IRS applies a tiered system of deduction limits based on the asset type and the receiving organization. When your total contributions in these categories exceed these percentages of your Adjusted Gross Income (AGI), the excess is codified as a carry forward.

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AGI Limit	Contribution Type & Recipient
100%	Conservation Easements: Specifically for qualified farmers and ranchers.
60%	Cash: Direct contributions to public charities, churches, or schools.
50%	Non-Cash: Standard donations of goods or qualified conservation easements for non-farmers.
30%	Appreciated Assets: Stocks or real estate given to public charities (using FMV).
30%	Foundations & "For the Use Of": Cash or non-appreciated assets given to private foundations or held in trust.
20%	Appreciated Assets to Foundations: Stocks or real estate given to private foundations.

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While the five-year window outlined in Internal Revenue Code Section 170(d) offers flexibility, it also requires careful adherence to IRS rules to avoid the potential loss of the deduction. Missing any of these can result in losing a deduction permanently.

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You Must Itemize Each Year You Claim the Carryover

A carry forward charitable deduction can only be claimed in years when you itemize deductions on Schedule A. If your total itemized deductions do not exceed the standard deduction for that year, you cannot use the carryover, though the clock on the five-year window is still ticking. For 2026, the standard deduction is $32,200 for married couples filing jointly and $16,100 for single filers.

Current-Year Donations Come First

The IRS requires that you apply your current-year charitable contributions before touching any carry forward amounts. Once current-year donations are accounted for, you apply carryovers in order, oldest first. This "First-In, First-Out" ordering rule prevents donors from selectively choosing which years to use the carryover.

Unused Carryovers Expire After Five Years

Any unused portion of a carryover that has not been claimed within five consecutive tax years is lost forever. Record-keeping for carryover balances is the responsibility of the taxpayer. Maintaining your own records, including prior tax returns, Form 8283 for non-cash gifts, and a running carryover worksheet, is the only way to protect these deductions.

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The carry forward charitable deduction rule may be particularly beneficial for donors making large, concentrated gifts in a single year. Several situations commonly give rise to a meaningful carryover:

Business sale or liquidity event: Donors who contribute appreciated private stock or business interests in the year of a liquidity event often exceed the 30% AGI cap in a single transaction.

Bunching strategy with a Donor-Advised Fund (DAF)*: Donors may consider consolidating multiple years of planned giving into one contribution for itemizing in high-income years. When bunched charitable donations exceed AGI limits, the carry forward captures any excess.

Major gift of appreciated real estate or securities: Long-term appreciated assets donated directly to a charity or DAF are subject to the 30% limit, making carryovers more likely for high-value donations.

Year-end tax planning decisions: Donors who accelerate giving before anticipated tax law changes may intentionally create carryovers as part of a multi-year strategy.

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Now that we have moved past the 2025 tax filing season, we are operating under the full implementation of the One Big Beautiful Bill Act (OBBBA). For donors, 2026 introduces changes that may affect how charitable contributions are calculated, requiring a more proactive approach to timing and asset selection than in years past.

You Must Itemize Each Year You Claim the Carryover

As of January 1, 2026, itemizing taxpayers may be required to clear a charitable floor equal to 0.5% of their Adjusted Gross Income (AGI) before their contributions provide a tax benefit. This means your first dollars of giving each year may be effectively non-deductible, as only the amount exceeding this 0.5% threshold can be claimed as an itemized deduction.

A bunching strategy is one method some donors consider for managing this change. When contributions are bunched, the donor is able to concentrate several years of charitable intent into a single tax year to clear the floor by a wider margin. Utilizing tools like a Donor-Advised Fund (DAF) allows you to make one large contribution today, clearing the potential 0.5% floor for 2026, while distributing those funds to your favorite charities over the next several years.

The 35% Cap on High-Income Deductions

For those in the top 37% federal income tax bracket, the OBBBA has introduced a specific cap on the value of itemized deductions. Even though your marginal tax rate remains at 37%, the tax benefit of your charitable deductions is now capped at 35%. This 2% valuation gap means that every dollar donated provides slightly less tax relief than it did previously. This change may prompt a review of the potential benefits of tax-efficient giving through appreciated assets rather than cash.

The Value of Grandfathered Carryovers

While 2026 introduces new rules, there is a silver lining for those who established carryovers in prior years. Any excess charitable contributions made before January 1, 2026, that are being carried forward into this year remain grandfathered.

These carryover amounts are not subject to the 0.5% AGI floor when applied to your 2026 return. Remaining 2025 carryover credits, which are eligible for use through the 2030 tax year, could potentially provide a benefit as first-dollar deductions. This strategy may help support your current-year liquidity, although the actual impact depends on your specific filing status and should be evaluated in collaboration with your tax professional to address potential limitations.

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Consider a Denver-area couple with a combined AGI of $300,000 who donates $150,000 in appreciated stock to a DAF in a single year. The 30% AGI limit allows them to deduct $90,000 in the year of the contribution. The remaining $60,000 becomes a carry forward charitable deduction, available to apply over the next five years.

How the Carryover Plays Out Year by Year

In year two, assuming their AGI remains $300,000, they can apply up to $90,000 of the carryover (30% of AGI), but since they only have $60,000 remaining, the entire balance is deducted. If their income fluctuates and they do not itemize in a given year, that year counts against the five-year window regardless, making early application preferable where possible.

Hypothetical example is for illustrative purposes. May not be representative of actual results.

Tracking Is the Donor's Responsibility

The IRS does not maintain a running balance of carryovers for individual filers. Keeping the original tax return, Form 8283 if non-cash assets were donated, and a simple carryover worksheet is the primary method intended to help protect these deductions.

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Managing a carry forward charitable deduction effectively requires coordinating your giving strategy with your overall tax picture. At 5280 Associates, we integrate charitable planning with proactive tax planning and estate planning with the goal of helping you maximize your eligible deductions. Our flat-fee fiduciary model means our advice is focused entirely on your goals instead of product sales.

We review charitable carryovers during our biannual client meetings, tracking how carryover amounts interact with shifting income, Roth conversion strategies, required minimum distributions, and the evolving tax landscape in 2026 and beyond.

If you have made a significant gift in recent years and are uncertain whether a carryover is working for you, or if you are planning a major contribution and want to understand the multi-year implications, contact the 5280 Associates team to schedule a comprehensive strategy review.

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Notice:

The concepts in this blog are intended for educational purposes only. They may not be suitable for your particular situation. The suitability of any specific product or strategy will be dependent upon your particular situation. Thrivent Advisor Network and its advisory persons do not provide legal advice, accounting or tax advice. You should consult with your attorney, tax advisor or accountant before implementing any strategy covered in this blog.

*Some Donor-Advised funds are considered mutual funds and are sold only by prospectus. The prospectus will provide information on charges, risks, expenses, and investment objectives and should be reviewed carefully before investing. Investment companies can provide a prospectus, or you may prefer to ask your financial professional. Please read it carefully before you invest or send money.

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How Can Estate Planning for Charitable Giving Help Align Your Wealth with Your Values?

Integrating estate planning for charitable giving into a financial framework allows a family to dictate how their assets are distributed through legal structures rather than simple cash donations. This strategic process helps align personal values with a formal estate plan to help protect long-term financial health and legacy goals. By treating philanthropy as a proactive component of the estate planning process, the advisory team can support the intentional transfer of wealth while protecting the interests of heirs.

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Estate planning for charitable giving involves the strategic selection of vehicles to support philanthropic goals while managing potential tax liabilities. Common structures include Donor-Advised Funds (DAFs), Charitable Remainder Trusts (CRTs), and Charitable Lead Trusts (CLTs). These tools facilitate a transition from simple bequests in a will to a structured, data-driven allocation of resources. However, it is important to remember that each of these vehicles carries specific administrative costs, tax limitations, and varying levels of liquidity.

The advisory team acts as a facilitator to help clients compile necessary documents for these charitable vehicles and trusts, acting as a guide through the technical requirements of the planning process. Please note that while these structures provide control over how assets are used, they often involve the irrevocable transfer of property. This means once the assets move into certain trusts, they generally cannot be taken back. This loss of direct control is a critical factor for any family to consider when balancing current needs with future impact.

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A well-constructed plan provides a framework that can help minimize waste and maximize the reach of every dollar. However, it is important to remember that advanced charitable strategies can involve upfront setup costs and ongoing administrative requirements that may not be suitable for every financial situation.

1. Proactive Tax Planning and Mitigation

Strategic timing can help maximize the impact of charitable gifts when coordinated with other planning milestones like Roth IRA conversions or Medicare Premium Planning. For example, a well-timed donation could potentially help mitigate IRMAA surcharges by lowering taxable income during a high-earnings year. This proactive coordination is intended to support the preservation of wealth by using charitable deductions to help offset specific tax spikes.

2. Balancing Impact with Capital Preservation

Estate planning for charitable giving can be a helpful tool for balancing the desire for impact with the necessity of capital preservation. This structured approach helps a family determine which assets are best suited for donation without compromising their own retirement security. By identifying the specific source of a gift within a broader financial framework, donors can visualize how their generosity affects their ability to sustain their desired lifestyle.

3. Colorado-Specific Tax Opportunities

The "remainder" refers to what is left in the trust at the end of the payment term. Once the income period concludes, the remaining assets pass to one or more qualified 501(c)(3) organizations. While the charity receives the final value, you may receive a partial income tax deduction at the time of the initial funding, based on the present value of that future gift.

4. Family Harmony and Intentional Legacy

A structured plan for estate planning for charitable giving helps define the underlying purpose of a family's wealth and provides a clear roadmap for the distribution of assets. This formal coordination allows for a balance between supporting children and contributing to the community, which may help reduce the potential for future conflict among heirs regarding the estate's direction. By integrating these intentions into legal documents now, families can foster harmony and ensure their legacy reflects their spiritual or faith-inspired responsibilities.

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Estate planning for charitable giving often becomes a priority during pivotal life transitions, such as the sale of a business, a major liquidity event, or the move into retirement. At these crossroads, the complexity of an asset profile, often involving concentrated stock or real estate, may benefit from a more sophisticated structure than traditional philanthropy to achieve both charitable and financial objectives. It is particularly relevant for those who identify with the following characteristics:

Purpose-Driven: You want your wealth to have a specific meaning beyond personal comfort or a standard inheritance.
Collaborative: You seek a relationship-based partnership and value the opportunity to ask questions and explore various strategies with your advisory team.
Actively Engaged: You maintain a coachable attitude and are ready to take action on professional advice to support the long-term health of your plan.
Outcome-Oriented: You seek to verify that your generosity supports organizations efficiently, helping to support the alignment of your intent with your charitable selections.

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While the concepts behind a legacy plan are often broad and vision-based, the final stage requires a structured process to turn those intentions into a legal reality. 5280 Associates serves as a facilitator in this execution phase, providing a clear path to finalize your documents without the traditional friction of complex legal coordination.

At 5280 Associates, this facilitated estate planning service is designed for efficiency, and we typically aim to move from the initial information-gathering phase to a completed plan within two to four weeks. For a flat, one-time fee of $2,500—with an additional $500 per real estate deed—our team guides you through the creation of a comprehensive binder containing your hard-copy Trust, Wills, Powers of Attorney, and Healthcare directives. By providing both a physical binder and a digital version for your records, we help ensure that the implementation of your strategy is as clear and organized as the strategy itself.

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Deciding how to distribute wealth is a deeply personal journey that extends far beyond a simple fiscal requirement. By focusing on estate planning for charitable giving, families can create a roadmap that honors their convictions while supporting their long-term financial goals.

5280 Associates remains committed to acting as an advocate for these complex decisions, providing the transparency and expertise required to bridge the gap between financial independence and meaningful impact. When a plan is properly structured and meticulously executed, the transition of wealth ceases to be a source of stress and instead becomes a source of fulfillment—a lasting, intentional contribution to the world that reflects the true values of your family.

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Notice:

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How Does a Charitable Remainder Trust Work for Your Legacy?

For many families, the transition from wealth accumulation to intentional stewardship is marked by a desire to create a lasting impact. You may have specific charitable goals you wish to fulfill, yet you must also account for your own long-term financial security and that of your heirs. This often creates a perceived conflict: Should you give now to see the impact of your generosity, or preserve your assets to maintain your lifestyle?

A charitable remainder trust, or CRT, is a strategic vehicle designed to resolve this tension. It functions as a split-interest trust that allows you to support the causes you value while potentially receiving a consistent income stream for a set period.

While the potential charitable tax advantages of a CRT often serve as the initial point of interest, an additional value of the strategy lies in its ability to align your financial resources with your personal values. To determine if this strategy supports your vision, it is important to examine the mechanics of how these trusts operate, from the initial selection of a structure to the long-term management of the assets.

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A CRT is an irrevocable trust that functions as a tax-exempt entity. When you fund the trust, you typically transfer appreciated assets, such as a concentration of stock or a piece of real estate. Once established, the trust provides a potential income stream to you or your designated heirs for a specific term of years or for life, after which the remaining assets pass to one or more qualified 501(c)(3) organizations. This structure is the functional opposite of a charitable lead trust, which prioritizes the charitable gift by making payments to a nonprofit first and distributing the remainder to heirs later.

Because the trust is a charitable vehicle, it may allow for the sale of these assets without immediate capital gains tax liability. This structure may allow the full value of the sale to be reinvested into a diversified portfolio. Although the tax considerations are distinct, the decision to move assets into an irrevocable trust means they are no longer under your direct personal control. This trade-off is a central consideration for any donor.

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A charitable remainder trust functions through a clear, three-stage lifecycle. Understanding this progression helps illustrate how the trust balances your current financial needs with your future charitable intent.

1. The Initial Funding

The process begins when you transfer appreciated assets or cash into a special irrevocable trust. Because the trust is a tax-exempt entity, it can sell the transferred assets without an immediate capital gains tax liability. This allows the full value of the sale to be reinvested into a diversified portfolio, rather than being reduced by taxes at the outset.

2. The Income Stream

Once the assets are reinvested, the trust provides an annual income stream to you or your designated heirs. This period can last for a specific term of up to 20 years or for the life of the beneficiaries. During this stage, you select between a fixed annuity for predictability or a variable unitrust for potential growth. These distributions are taxable to the recipient based on the specific tier of income being distributed by the trust.

3. The Charitable Gift

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When establishing a charitable remainder trust, you must select one of two primary structures: a Charitable Remainder Annuity Trust, or CRAT, and a Charitable Remainder Unitrust, or CRUT. While both models support your philanthropic goals, they offer different approaches to beneficiary income and asset management.

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Feature	Charitable Remainder Annuity Trust (CRAT)	Charitable Remainder Unitrust (CRUT)
Payment Model	Fixed Annuity	Variable Unitrust
Annual Distribution	A fixed dollar amount determined at the start.	A fixed percentage of the trust's value.
Asset Valuation	Assets are valued once when the trust is funded.	Assets are revalued annually by the trustee.
Primary Advantage	High level of predictability for cash flow goals.	Potential for income to grow with the portfolio.
Inflation Risk	Fixed payments may lose purchasing power over time.	Payouts may act as a hedge against rising costs.
Market Risk	Payments remain the same regardless of performance	If asset values decline, the annual distribution decreases.

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A potential risk with a CRAT is the impact of inflation over time, as a fixed payment may lose purchasing power. In contrast, a CRUT has the potential to act as a hedge against rising costs. If the portfolio performance is positive and the asset value grows, the annual distribution could potentially increase accordingly. However, it is important to remember that investments come with risks, and if the portfolio performance is negative or asset values decline, the annual distribution would likely decrease, potentially impacting your cash flow.

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Beyond selecting the right trust structure, it is important to understand how a charitable remainder trust interacts with the tax code. While these vehicles can offer significant strategic advantages, they also operate under a specific set of IRS rules that govern everything from how your income is taxed to the technical limits of the trust’s funding. Evaluating these considerations with your advisory team is a key step in determining if a trust aligns with your overall goals.

Understanding How Distributions are Taxed

While a charitable remainder trust is a tax-exempt entity, the income it distributes is generally taxable to the recipient. The IRS uses a specific ordering rule to characterize these payments, which are reported to beneficiaries annually on Schedule K-1 (Form 1041). This document helps you identify how your distributions are categorized across the following four tiers:

Distribution Tier	Order of Payment	Description of Income Type
Tier 1	First	Ordinary Income: Interest, dividends, and other non-capital gain income.
Tier 2	Second	Capital Gains: Gains resulting from the sale of trust assets.
Tier 3	Third	Other Income: Specifically tax-exempt income, such as municipal bond interest.
Tier 4	Fourth	Trust Corpus: A non-taxable return of principal, or the original assets.

IRS Compliance and Technical Guardrails

To maintain tax-exempt status, a charitable remainder trust must adhere to specific IRS guidelines. A key requirement is the 10% remainder rule, which stipulates that the present value of the interest destined for the charity is targeted to be at least 10% of the initial fair market value of the assets contributed. This valuation is calculated using IRS-prescribed interest rates, known as Section 7520 rates, which fluctuate monthly and can impact the trust's initial qualification.

Specific mandates also define the boundaries for annual distributions. Regardless of the trust structure selected, the annual payout is generally at least 5% and no more than 50% of the trust value. Additionally, for assets transferred to the trust during the lifetime of the donor, the IRS requires the use of carryover basis. This means the trust’s basis in the transferred assets is the same basis that it would be in the hands of the donor. By law, a trust may not inflate this basis to market value upon transfer to minimize capital gains or ordinary income.

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What is Carryover Basis? When someone receives an asset as a gift, they also inherit the original owner’s purchase price for tax purposes. If the recipient later sells the asset, their capital gain is calculated using the amount the giver originally paid.

Source: Cornell Law School, Wex Definitions Team

Because these technical guardrails are so precise, many donors find that the administrative burden of staying compliant is best managed by a dedicated professional.

Examining the Potential Tax Benefits

The federal government offers potential tax incentives for those using these charitable strategies. However, these benefits are accompanied by specific trade-offs, and it is important to review these with your tax and legal professionals.

Potential Income Tax Deduction: Donors may receive an immediate partial income tax deduction based on the present value of the future gift. Note that this is a partial deduction, and the immediate tax benefit may be offset by ongoing administrative costs and professional fees.

Capital Gains Deferral: Selling appreciated assets within the trust may defer tax liabilities, allowing for more capital to remain invested for charity and income beneficiaries. However, this deferral is a trade-off for the loss of direct control over the assets once they are moved into the irrevocable trust.

Potential Estate Tax Reduction: Moving assets into the trust removes them from your personal estate, which might help support a reduction in future tax burdens for heirs. This benefit must be weighed against the complex IRS reporting requirements and the fact that these assets will eventually pass to a charitable organization rather than your heirs.

Who Can Benefit from Professional Trustee Selection?

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The role of the trustee can be demanding. They are responsible for annual asset revaluations, managing complex investment portfolios, and filing IRS forms like Form 5227. While some donors consider acting as their own trustee, this path carries the risk of self-dealing or administrative errors that could jeopardize the trust's status.

Using a professional corporate trustee is designed to help facilitate administrative ease and support the accuracy of all distributions and filings. While 5280 Associates supports your strategic planning process, we believe it is also necessary to collaborate closely with your legal and tax professionals to manage the documentation and compliance aspects of the trust.

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A CRT functions as a strategic tool to help you support your charitable goals while creating a potential income stream for your beneficiaries. By understanding how a charitable remainder trust works, you can better evaluate if this strategy aligns with your long-term legacy.

We invite you to discuss these strategies with our firm and your legal counsel to see how they might fit into your broader financial picture.

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Notice:

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Building a Legacy of Purpose through Multi-Generational Giving

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As Baby Boomers pass wealth onto their heirs, we will enter a period often referred to as the Great Wealth Transfer. During this event, trillions of dollars are expected to change hands, with an estimated total of roughly $18 trillion to be earmarked for philanthropy. For families seeking a multi-generational giving strategy, the coming years represent a period of action, marking a shift from the accumulation of capital toward the intentional distribution and stewardship of a legacy.

Integrating these strategies into a comprehensive estate plan requires an understanding of how different structures can bridge the gap between generational perspectives. A thoughtful approach to tax-efficient charitable giving can serve as a foundation for family cohesion. Our latest white paper examines these dynamics in detail, offering a guide to the structural tools and family governance models that support a lasting impact of multi-generational giving.

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Inside the guide:

▪︎ The transition from ownership to stewardship

▪︎ Approaches to bridging the generational values gap

▪︎ Methods for meaningful family engagement

▪︎ A comparison of Private Foundations, DAFs, and Charitable Trusts

▪︎ The role of objective advice in philanthropic planning

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The movement of wealth often prompts a shift in perspective. While the founding generation frequently focuses on the discipline of building assets, subsequent generations are tasked with the responsibility of managing that capital for broader impact. This creates a moment where families often choose between individuation and collaboration.

Individuation provides heirs the freedom to pursue personal interests independently, whereas collaboration invites the family to unite around a collective purpose. Without a deliberate strategy, this transition can become a source of friction, potentially leading to missed opportunities for tax efficiency or the dilution of the founder’s original philanthropic intent. A unifying framework helps prevent a decline in family connectedness, ensuring that the transfer of wealth strengthens rather than strains internal bonds.

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Families seeking to give together often find success in a hybrid model that combines individuation with collaboration. This structure addresses diverse interests by pairing a central legacy foundation with satellite funds. The foundation serves as the anchor for the family’s collective mission, while the satellite funds grant younger members the agency to support causes that align with their personal passions.

Selecting the appropriate charitable vehicles involves a careful assessment of several specialized tools. Some popular options include:

▪︎ Private Foundations can offer a structured arena for collaborative governance and direct control over grantmaking. Private foundations can provide a platform for training the next generation in fiscal responsibility, though they come with higher administrative requirements and a mandatory annual payout of 5%.

▪︎ Donor-Advised Funds provide simplicity and privacy. Starting a DAF may be suitable for individual family members who value ease of use. Please keep in mind that contributions to a DAF are irrevocable, as the donor transfers legal ownership of the assets to the sponsoring organization.

▪︎ Charitable Trusts, such as Charitable Remainder Trusts, can provide an income stream for beneficiaries while securing a future gift for a chosen cause. These require meticulous legal drafting to help align with specific financial and philanthropic objectives.

When coordinated effectively, these tools can help frame the wealth transfer as a practical learning system. This environment is intended to provide an opportunity for the next generation to gain experience in financial oversight and governance within a controlled, purposeful setting.

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Developing a multi-generational giving plan is an endeavor where legal structures, tax considerations, and complex family relationships intersect. At 5280 Associates, we aim to act as a coordinator for your broader professional team, working alongside your CPA and estate attorney to help you form a cohesive plan.

Traditional fee structures based on assets under management can create a subtle disincentive for advisors to recommend large charitable gifts, but our flat-fee model is designed to prioritize objective guidance. Because our compensation is not tied to the size of your portfolio, our recommendations are intended to support your family’s goals.

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Disclaimer

Some donor-advised funds are considered mutual funds and are sold only by prospectus. The prospectus will provide information on charges, risks, expenses, and investment objectives and should be reviewed carefully before investing. Investment companies can provide a prospectus, or you may prefer to ask your financial professional. Please read it carefully before you invest or send money.

Notice: The concepts in this blog are intended for educational purposes only. They may not be suitable for your particular situation. The suitability of any specific product or strategy will be dependent upon your particular situation. Thrivent Advisor Network and its advisory persons do not provide legal advice, accounting or tax advice. You should consult with your attorney, tax advisor or accountant before implementing any strategy covered in this blog. 

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The Pros and Cons of Donor-Advised Funds

Charitable giving can be a deeply personal decision. For many, philanthropy is about supporting causes that matter to their family and leaving a legacy that reflects their values. As you consider how to structure your philanthropy, you might hear about donor-advised funds, or DAFs.

According to the yearly Donor-Advised Fund Report, historically published by the National Philanthropic Trust and now produced by the DAF Research Collaborative, DAFs have grown considerably throughout the past decade. The 2025 DAF report for fiscal year 2024 shows a 106% increase in national sponsors (99 vs 48) and a 356% increase in total contributions ($89.64 billion vs $19.66 billion) when compared to the 2015 DAF report for fiscal year 2014.

While DAFs offer distinct advantages for charitable tax planning and administrative simplicity, they are not always the right fit for every donor. At 5280 Associates, we believe in transparency. You deserve to know the full picture, including the benefits and the costs, so you can decide if a DAF aligns with your broader financial plan.

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What is a Donor-Advised Fund

The Core Benefits of a DAF

The Costs and Considerations

The 5280 Approach

Is a DAF Right For You?

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A common analogy for a DAF is a "charitable savings account." It is a dedicated account established at a public charity (the sponsor) that allows you to make an irrevocable contribution of personal assets.

The process generally works like this:

▪︎ Give: You contribute cash, stocks, or other assets to the fund. You typically receive an immediate income tax deduction in the year you make the donation.

▪︎ Grow: The funds can be invested, where they have the potential to grow tax-free.

▪︎ Grant: You recommend grants to IRS-qualified public charities on your own timeline.

This structure separates the tax event from the charitable distribution. You get the tax benefit now, but you can take your time deciding which charities to support later.

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As your financial picture evolves, the tools you use to support your favorite causes often need to evolve as well. Starting a donor-advised fund can serve as a bridge, allowing you to move from reactive, annual giving to a more proactive and structured approach. These funds offer distinct advantages that go beyond what is possible with traditional checkbook giving. Understanding these pros can help you see where a DAF might fit into your strategy.

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Potential DAF Tax Benefits

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For many families, the goal is to help direct the maximum possible amount of wealth to the charity rather than being eroded by taxes. The tax efficiency of a DAF is often its primary selling point. By leveraging specific incentives within the tax code, you can potentially preserve more capital for your chosen causes.

▪︎ Immediate Deduction: You receive a federal income tax deduction for the year you contribute, subject to IRS limitations.

▪︎ Tax-Free Growth Potential: Once assets are in the DAF, any investment growth is generally not taxed. This means more money may be available for charities over time.

▪︎ Capital Gains Bypass: This is often one of the most overlooked advantages. If you donate appreciated assets held for more than one year, you can generally deduct the full fair market value and potentially eliminate the capital gains tax you would have incurred if you sold the asset first.

*Note: While these benefits can be significant, they are subject to strict IRS rules and asset irrevocability

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The DAF Bunching Strategy

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Current tax laws have established a significantly higher standard deduction, with the One Big Beautiful Bill Act increasing the standard deduction to $15,750 for single or married filing separately and $31,500 for married couples filing jointly. As a result, many families may no longer be able itemize their deductions every year. A DAF allows for a strategy called "bunching."

Bunching charitable donations involves combining multiple years of planned charitable giving into a single tax year to exceed the high standard deduction threshold. You can contribute three years’ worth of giving into a DAF in year one to potentially increase your tax deduction and then distribute the funds to your favorite charities over the following three years. This is a common discussion point during our Proactive Tax Planning reviews.

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Reducing Friction

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Donating complex assets to small charities can be difficult. A local animal shelter or food bank may not have the brokerage account or administrative capacity to accept a donation of stock or real estate.

A DAF can help reduce this friction. You make one donation of the complex asset to the DAF sponsor, and the sponsor converts the asset into grantable funds. You can then recommend cash grants to multiple smaller charities from your fund. The DAF approach can help to simplify the paperwork for you and the charity.

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When making a decision, financial or otherwise, one should not focus solely on the positives. From their fee structure to an irrevocable finality, DAFs come with limitations. By examining these possible drawbacks, charitable donors can position themselves as informed philanthropists.

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The Total Cost of Ownership

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While DAFs can offer significant advantages, they are not a cost-free solution. Looking beyond the tax deduction and evaluating the expenses required to maintain the account over time can help donors better understand the total cost of ownership. According to data from the National Philanthropic Trust, donors generally encounter two distinct layers of fees that can affect the long-term growth of their charitable assets:

▪︎ Administrative Fees: The sponsoring organization charges a fee to administer the account, perform due diligence, and handle reporting. For standard accounts, these fees often start around 0.60% annually.

▪︎ Investment Fees: Distinct from administrative costs, the underlying mutual funds or ETFs inside the account have their own expense ratios. These are assessed independently and vary based on the investment strategy selected, ranging from low-cost index funds to more expensive active strategies.

If your goal is to donate cash and have it go to a charity immediately, a DAF could add unnecessary cost. In that scenario, writing a direct check may be more efficient.

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Delayed Charitable Impact

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A structural criticism of DAFs is the potential for warehousing wealth. While the donor receives an immediate tax deduction upon contribution, there is no legal requirement to distribute those funds to a working nonprofit within a specific timeframe. This creates a disconnect: the tax benefit is realized instantly, but the societal benefit is deferred.

For donors focused on urgent causes, such as disaster relief or other humanitarian crises, this delay represents a real opportunity cost. A dollar sitting in a DAF investment account today is a dollar that isn't providing services to the community today. If your primary goal is immediate impact rather than long-term endowment building, this structure introduces unnecessary friction compared to writing a direct check.

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Irrevocability and Control

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Once you contribute assets to a DAF, the transfer is irrevocable. You cannot take the money back if your financial situation changes. Additionally, while you retain "advisory privileges" to recommend grants and investment allocations, the sponsoring organization has legal control over the funds.

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Some donors may leave their DAF assets in cash or a generic balanced fund without much thought. We believe your charitable assets should be managed with the same intentionality as your retirement assets. We apply our Bucket Allocation logic here:

▪︎ Short-Term Bucket: If you plan to grant the funds within 12 months, we generally recommend keeping those assets in stable value options like money markets to help mitigate volatility.

▪︎ Long-Term Bucket: If you are building a legacy fund to be distributed over 10 or 20 years, it may be appropriate to invest in equities to seek long-term growth potential, though this involves market risk and the potential for loss.

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Donor-advised funds can be powerful tools for managing tax liabilities and simplifying the administration of giving. They are particularly effective for bunching deductions and donating appreciated assets. However, they come with fees and rules that must be weighed carefully.

At 5280 Associates, our goal is to support you as you evaluate your financial options. We work alongside your CPA, estate attorney, and tax professionals to review how a DAF interacts with your overall estate and tax picture.

Are you holding appreciated stock or looking to bring more structure to your family’s giving? Let’s review your philanthropic goals to see if a donor-advised fund could fit in your portfolio.

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NOTICE: This explanation is provided for informational purposes only and is not to be construed as or considered to be legal or tax advice. You should always consult your tax advisor with any and all questions regarding any all tax and tax related matters, including any questions that you may have concerning tax strategies described generally above.

Thrivent Advisor Network and its advisory persons do not provide legal, accounting, or tax advice. Consult your attorney or tax professional.

Some Donor-Advised funds are considered mutual funds and are sold only by prospectus. The prospectus will provide information on charges, risks, expenses, and investment objectives and should be reviewed carefully before investing. Investment companies can provide a prospectus, or you may prefer to ask your financial professional. Please read it carefully before you invest or send money.

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The Future of Donor-Advised Fund Rules

In our experience, donor-advised funds (DAFs) have become a central part of how financially independent families approach generosity. With over $250 billion in assets held across the sector, DAFs represent a significant force in modern philanthropy trends. Yet, the future of donor-advised funds is currently being shaped by two regulatory shifts that may affect your current DAF strategy:

▪︎ The One Big Beautiful Bill Act (OBBBA) introduces significant tax law changes to donor advised funds, effective in 2025 and beyond.

▪︎ Proposed new donor advised fund regulations from the IRS aimed at preventing potential misuse.

These regulatory shifts suggest an importance in looking past simple giving and moving toward strategic, intentional planning.

At 5280 Associates, we believe great planning starts with transparency. As your dedicated Fiduciary, we position ourselves on your side of the table and act as your advocate. Our team, which includes CERTIFIED FINANCIAL PLANNER™ professionals who specialize in tax efficiency and estate planning, is prepared to help simplify these complex donor advised fund rules. Our aim is to guide you through the details so you can focus on the fulfillment of your giving.

The OBBBA legislation introduces changes for charitable deductions that may influence your planning approach for 2025 and beyond. We see specific opportunities to help maximize tax savings now, before changes to donor advised funds take full effect in 2026.

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Starting in 2026, itemizers will face the new charitable deduction floor. Contributions will only be deductible to the extent they exceed your Adjusted Gross Income (AGI).

The Implication: For those who itemize, the habit of making numerous smaller, annual, or scattershot gifts may no longer provide a material tax benefit. You want to ensure your philanthropic intent still yields the appropriate tax result.

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Bunching charitable donations is an effective way to address the new AGI floor. It involves consolidating several years of planned charitable giving into a single DAF contribution in 2025. This allows you to:

▪︎ Clear the AGI Floor: Achieve a large enough deduction to make itemizing worthwhile in the "bunching” year.

▪︎ Maintain Giving: Distribute grants from your DAF over the subsequent years while taking the higher Standard Deduction on your tax return.

▪︎ Secure Current Rates: Lock in the deduction under today’s more favorable tax rules.

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Imagine a married couple with a $400,000 AGI who typically give $8,000 per year to charity.

▪︎ Under the 2026 Rule: Their charitable floor would be $2,000 (0.5% of $400K). An $8,000 annual gift would only yield a $6,000 deductible amount.

▪︎ The 2025 Strategy: The couple could bunch five years of giving into a single $40,000 DAF contribution in 2025. They would itemize their deductions in 2025 to claim the full benefit. For the next four years, they would rely on the DAF for their giving and take the much higher Standard Deduction, resulting in greater cumulative tax savings.

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The OBBBA also introduces a change for the highest earners. Beginning in 2026, the tax benefit of itemized charitable deductions for those in the 37% tax bracket will be capped at a value of 35%. This cap is achieved by a new limitation that requires a reduction of 2/37ths on "other itemized deductions," which includes charitable contributions, for taxpayers whose income exceeds the top marginal tax rate threshold.

The Action: If you are in the top tax bracket and contemplating a significant gift, accelerating that contribution to your DAF in 2025 allows you to capture the full current 37% deduction value before the cap takes effect.

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When asking, "What’s the smartest way to give?" the answer often involves looking beyond your checking account. Donor-advised fund rules are particularly powerful when combined with gifts of appreciated assets.

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Donating assets that you have held for more than one year (long-term appreciated stock or mutual funds) to your DAF offers a dual tax impact:

▪︎ Income Tax Deduction: You receive an immediate income tax deduction for the asset's full Fair Market Value (FMV), subject to AGI limits.

▪︎ Capital gains Avoidance: You avoid paying capital gains tax on the asset’s appreciation, which is tax-free when sold by the DAF sponsor.

▪︎ Consideration: Gifts of appreciated property are limited to 30% of your AGI, compared to 60% for cash gifts.

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For those with significant wealth, including business owners or real estate investors, DAFs can also accept:

▪︎ Private Equity

▪︎ Real Estate

▪︎ Privately Held Business Interests

The Rule: The DAF sponsoring organization takes on the often-onerous administrative and legal burden of valuing and liquidating these illiquid assets. This removes a major hurdle for the donor and unlocks powerful tax benefits that may have been out of reach otherwise.

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DAFs can be key component of tax-efficient charitable planning, and QCDs can complement these efforts for individuals age 70½ and older.

▪︎ The Rule: Individuals age 70½ and older can transfer up to annually directly from an IRA to a qualified charity (excluding DAFs).

▪︎ The Result: This transfer satisfies your Required Minimum Distribution (RMD) without the distribution ever being counted as taxable income. This can be a critical strategy for tax-aware individuals who are focused on preservation and legacy planning.

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The IRS and Treasury Department have proposed new donor advised fund regulations that clarify certain donor advised fund rules and address perceived opportunities for abuse. Understanding these potential compliance changes is key to confidence.

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The proposed regulations seek to impose an excise tax on DAFs if their funds are used to pay a donor's personal investment advisor. This is intended to prevent advisors from having a financial disincentive to recommend that funds be granted out.

The 5280 Associates Advocacy Point: Our model is built on transparency. We operate as a flat-fee fiduciary firm. Our clients understand their planning costs upfront, and their relationship with us is not tied to the balances in their DAF. This separation inherently aligns our advice with your best interests and minimizes compliance concerns regarding advisory fees.

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The Pension Protection Act of 2006 (PPA) established a mandatory set of anti-abuse rules to govern donor advised funds (DAFs) and the individuals who advise them. Violating these rules is considered an act of self-dealing, triggering a severe 125% excise tax on the prohibited benefit for the donor or advisor under Internal Revenue Code Section 4967. This strict compliance is necessary to ensure that funds for which a donor has already claimed a full tax deduction are used exclusively for public charitable purposes.

▪︎ Prohibited Action: Using a DAF to purchase goods, services, or benefits that are not incidental to the charitable contribution. Examples include, but aren’t limited to, gala tickets, auction items, memberships. In all such cases, the non-charitable portion of the purchase must be paid for with personal funds rather than the DAF.

▪︎ The Rule of "Bifurcation": It is prohibited for a donor to split a payment, where the DAF pays the charitable portion and the donor pays the personal benefit portion. The full cost of the benefit must be covered by the donor's personal funds.

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For those whose purpose-driven giving extends beyond U.S. borders, donor advised fund rules for international granting are highly technical.

▪︎ The DAF Rule: Grants can be made to foreign charities, but the U.S. DAF sponsor assumes significant liability.

▪︎ The Compliance Requirement: To satisfy the IRS, the DAF sponsor must perform extensive due diligence by either making a good-faith Equivalency Determination (ED) or maintaining Expenditure Responsibility (ER), a complex process involving written agreements and detailed grant reporting.

▪︎ Consideration: While this due diligence takes time, relying on a DAF sponsor to manage ED or ER is often far easier and less expensive for the donor than attempting to manage this compliance through a private foundation.

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For engaged, intentional, and coachable clients who want their wealth to reflect their values and leave a lasting legacy. By starting a donor-advised fund, you can help ensure that your charitable strategy includes a tax-efficient approach.

We believe that your financial planning should always reflect your giving goals. At 5280 Associates, our core pillars drive a distinctive approach:

▪︎ Advocacy: We believe that every decision should revolve around the client, and our counsel on your DAF, QCD, or Charitable Trust is solely dedicated to helping maximize your charitable impact and tax optimization.

▪︎ Teamwork: Our experienced team, including CERTIFIED FINANCIAL PLANNER™ professionals, helps integrate your charitable planning with estate planning and proactive tax planning. We don't view these as separate tasks; they are one seamless, ongoing discussion, reviewed biannually.

▪︎ Transparency: We provide flat-fee wealth management. You know the cost and the full menu of services upfront, removing any uncertainty and allowing you to challenge our team on strategy without worrying about hidden costs.

Working with a fiduciary can allow you to explore strategic planning options and prepare for evolving donor-advised fund rules with confidence.

Contact the 5280 Associates team to schedule your comprehensive strategy review and to help ensure your 2025 giving maximizes your fulfillment and your tax advantage.

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Notice: The concepts in this blog are intended for educational purposes only. They may not be suitable for your particular situation. The suitability of any specific product or strategy will be dependent upon your particular situation. Thrivent Advisor Network and its advisory persons do not provide legal advice, accounting or tax advice. You should consult with your attorney, tax advisor or accountant before implementing any strategy covered in this blog.

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