Table of Contents
By Scott E. Jones, BFA™, CPFA®, CRPC®, RFC®
Many South Jersey families write a check to the same church, school or local charity every year. The giving is meaningful, but it usually sits outside the rest of the family’s financial and estate planning.
A donor-advised fund can turn that habit into a coordinated plan. It helps a family decide what to give, when to give it and who carries the giving forward later. It is not a substitute for a will, trust or tax plan. It is one tool that can connect them.
What is a donor-advised fund?
A donor-advised fund is an account held by a sponsoring public charity. You contribute cash, investments or other assets the sponsor accepts. If you qualify for a charitable deduction, you generally claim it in the year you contribute. You then recommend grants to eligible charities over time.
That timing is the point. A family could contribute enough today to cover several years of planned giving, then keep sending grants to its regular charities each year. The charities are supported on the family’s schedule, while any deduction belongs to the contribution year.
The contribution is irrevocable. Once an asset goes in, it cannot come back to you or pay personal expenses. The sponsor has legal control and final authority. You and the advisors you name recommend investments and grants, subject to the sponsor’s policies.
For many families that is simpler than running a private foundation, but it does mean giving up ownership. Before funding one, read the sponsor’s rules on fees, minimum grants, investment options, successor advisors and accepted assets.
Why does giving appreciated stock instead of cash matter?
Consider a hypothetical couple who plans to give $20,000 and owns publicly traded stock that has grown from $5,000 to $20,000 over more than a year. They could sell the stock, pay tax on the gain and donate the cash. Or they could contribute the shares directly to a donor-advised fund.
When long-term appreciated securities are donated directly rather than sold first, the donor generally does not recognize the capital gain. If the other requirements are met, the deduction may be based on the fair market value on the contribution date.¹
The details matter. The sponsor has to accept the shares, and the deduction only helps if you itemize. Publicly traded securities are easy to value. Real estate or an interest in a closely held business may need an appraisal, advance review and more time.
Federal deduction limits also depend on what you give. Cash gifts to public charities are generally deductible up to 60% of adjusted gross income. Long-term appreciated property deducted at fair market value is generally limited to 30%.² Amounts over the limit may carry forward, but the math gets complicated when several types of gifts are made in the same year.
How did the 2026 tax changes affect charitable deductions?
First, itemizers can deduct only the charitable contributions that exceed 0.5% of adjusted gross income. With adjusted gross income of $200,000, the first $1,000 of giving falls below that floor.³
Second, households in the top 37% bracket face a limit on the value of itemized deductions. In practical terms, the federal benefit is generally capped at about 35 cents per deductible dollar instead of 37.³
There is also a new deduction for people who do not itemize: up to $1,000 of cash gifts, or $2,000 on a joint return. The cash has to go directly to an eligible charity. Contributions to donor-advised funds do not qualify.⁴
These rules make timing more important. “Bunching” means combining several years of intended gifts into one tax year. A couple that normally gives $10,000 a year might contribute $30,000 to a fund in one year, then recommend grants of about $10,000 a year for the next three.
Bunching does not create a deduction by itself. It may help a household clear the standard deduction and the new floor in the contribution year. Whether it works depends on income, filing status, other deductions and the type of asset given. That is why the numbers should be run before anything is transferred, and why a donor-advised fund in New Jersey is best reviewed alongside the family’s tax return, investments and estate documents.
Can you give from your IRA to a donor-advised fund?
Not through a qualified charitable distribution. A QCD must go directly from the IRA custodian to an eligible charity, and donor-advised funds are specifically excluded.⁵
This is a common point of confusion. A QCD can satisfy part or all of a required minimum distribution when the rules are met. A donor-advised fund contribution follows different rules and may produce an itemized deduction instead.
The lesson is that the account you give from matters. Someone with appreciated stock in a brokerage account and money in an IRA may have more than one way to support charity, but the routes are not interchangeable. Age, income, required distributions and deductions all affect which asset should fund which gift.
How does a donor-advised fund fit into your estate plan?
A fund can carry a family’s giving beyond one lifetime. Many sponsors let you name successor advisors, such as adult children, to recommend future grants. That gives the next generation a structured way to talk about the causes the family has supported and decide how the tradition continues.
Be specific in the succession instructions. Decide whether children will advise together or separately, whether certain charities should keep receiving grants and what happens if a successor cannot serve. The sponsor’s forms control the account, so review them with your will and any trust.
Beneficiary designations deserve the same attention. A charity, including a donor-advised fund sponsor, can be named as a beneficiary of a retirement account. Individuals who inherit a traditional IRA generally pay income tax on what they withdraw. A qualifying charity generally does not.⁵ When a plan includes both family and charitable bequests, that difference makes retirement accounts worth a closer look.
New Jersey adds another layer. Transfers to qualifying charitable organizations, known as Class E transferees, are generally exempt from New Jersey inheritance tax.⁶ Confirm qualification, because federal nonprofit status alone does not settle every state question.
The plan should also cover incapacity, not only death. If you would want an agent to continue your regular giving, your financial power of attorney should say so clearly and grant the authority to do it. The attorney drafting the document can make sure that intention works under New Jersey law.
What should you decide before you open one?
- Which assets to give, whether cash, appreciated securities or something else
- How much to contribute and when, based on cash flow, taxes and the grant schedule you want
- Who will serve as successor advisors and how they will make decisions
- Which retirement accounts need updated beneficiary designations
- How the fund works with your will, trust, power of attorney and the rest of the estate plan
A donor-advised fund works best when it is coordinated with your tax, estate and retirement plans rather than set up on its own. Talk with your tax and legal advisors before contributing assets or changing beneficiary designations.
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Scott E. Jones, BFA™, CPFA®, CRPC®, RFC®, is the founder of Genesis Wealth Advisor Group, LLC, a fiduciary financial planning firm in Marlton, New Jersey, specializing in retirement income planning, behavioral finance and Social Security strategy. This article is for educational purposes only and does not constitute personalized financial, tax or legal advice.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.
Securities and investment advisory services offered through Osaic Wealth, Inc., member FINRA/SIPC. Osaic Wealth is separately owned, and other entities and/or marketing names, products or services referenced are independent of Osaic Wealth.
Sources
- Internal Revenue Service, Publication 526, Charitable Contributions, and Publication 561, Determining the Value of Donated Property
- Internal Revenue Service, Publication 526, Charitable Contributions
- Internal Revenue Service, Publication 505 (2026), Tax Withholding and Estimated Tax
- Internal Revenue Service, Working Families Tax Cuts
- Internal Revenue Service, Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), and Publication 557, Tax-Exempt Status for Your Organization
- New Jersey Division of Taxation, Inheritance and Estate Tax definitions
