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.

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.

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.

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. 

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.

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.

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. 

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.

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. 

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.

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. 

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. 

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. 

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.

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.