Aligned Giving and the Modern Estate Plan

How Donor-Advised Funds (DAFs) are Helping Families Align Wealth, Values and Legacy

Donor advised funds, commonly referred to as DAFs, have quietly become one of the most important charitable planning tools in America. Once used primarily by ultra wealthy families and large institutional donors, DAFs are now widely utilized by business owners, retirees, inheritors, and families seeking a more flexible and intentional approach to charitable giving.

At their core, DAFs are relatively simple. A donor contributes cash, appreciated securities, or other assets to a charitable account administered by a sponsoring nonprofit organization. The donor generally receives an immediate income tax deduction and may then recommend grants over time to qualified nonprofit organizations.

What has changed over the last decade is the role DAFs now play beyond tax planning. Increasingly, estate planning attorneys, financial advisors, and philanthropic consultants are incorporating DAFs into broader legacy and family planning discussions. For many families, the DAF has become not simply a tax strategy, but a long term charitable vehicle that helps align wealth, values, family purpose, and community impact across generations.

Below are several of the most important ways DAFs are being used in modern estate planning.

Flexibility in Wills and Trusts

One of the most practical advantages of incorporating a DAF into estate planning is flexibility.

Traditionally, charitable bequests in wills or trusts often named specific nonprofit organizations and specified exact dollar amounts or percentages. While well intentioned, these arrangements can become problematic over time. Nonprofits merge, change mission, decline in effectiveness, or simply fall out of alignment with a donor’s evolving interests. Updating estate documents every time charitable intentions shift can become cumbersome and expensive.

By naming a DAF as the charitable beneficiary instead, families gain substantial flexibility.

The estate plan can direct assets to the donor’s DAF, while allowing family members or successor advisors to recommend grants to nonprofits over time based on current needs and priorities. The donor’s charitable intent remains intact, while preserving adaptability and better alignment with the family’s evolving values and goals.

Consider a retired business owner who originally intended to leave significant bequests to several local organizations. Over the years, one nonprofit dissolved, another changed leadership and mission, and the donor became increasingly interested in environmental conservation. Rather than repeatedly amending complex trust documents, the donor revised the estate plan to direct charitable assets to a DAF. Upon death, the children, serving as successor advisors to the fund, were able to continue supporting causes aligned with both the family’s values and the changing needs of their community.

For many attorneys, this flexibility alone has made DAFs an increasingly attractive planning option.

Creating a Multigenerational Legacy of Giving

Estate planning is not simply about taxes and asset transfer. Increasingly, families are asking deeper questions about legacy, purpose, and the responsible stewardship of wealth.

DAFs can provide a practical framework for passing along charitable values from one generation to the next.

Unlike a one time charitable bequest, a DAF may continue for years or even decades after the original donor’s death. Children and grandchildren may serve as successor advisors, participating together in charitable discussions, grantmaking decisions, and family conversations about community impact.

In many families, this process becomes one of the few structured opportunities for multiple generations to engage in meaningful discussions about values, priorities, and how family resources can remain aligned with the causes they care about most deeply.

For example, one family sold a closely held manufacturing business after several decades of ownership. Prior to the sale, the parents contributed appreciated shares into a DAF, generating significant tax savings. More importantly, they began involving their adult children in annual family meetings to discuss charitable goals and grant recommendations. Years later, after the parents passed away, the DAF continued to serve as a unifying family structure, helping siblings and grandchildren remain connected around a shared philanthropic mission rooted in the family’s values and sense of purpose.

Many advisors now recognize that charitable planning can strengthen family identity and cohesion in ways that traditional wealth transfer planning alone often cannot.

Managing Highly Appreciated Assets Efficiently

DAFs have also become an important tool in planning around highly appreciated assets.

Many high net worth individuals hold concentrated positions in stocks, real estate, privately held business interests, or cryptocurrency that have grown substantially over time. Selling these assets outright may trigger large capital gains taxes.

Contributing appreciated assets directly to a DAF can often eliminate capital gains tax exposure while also generating a charitable deduction based on fair market value, subject to applicable tax rules and limitations.

This strategy frequently becomes especially important during liquidity events such as business sales, inheritance planning, or retirement transitions.

Consider the case of a longtime entrepreneur preparing to sell a family business. The owner had substantial charitable intent but had not identified specific organizations to support. By contributing a portion of the business interest to a DAF before the transaction closed, the donor reduced taxable gain exposure and created a charitable reserve that could later be distributed thoughtfully over many years.

Without the DAF structure, the pressure to identify charities and complete gifts quickly before year end might have resulted in reactive giving decisions rather than a deliberate charitable strategy aligned with the donor’s values, family goals, and long term philanthropic vision.

Simplifying Charitable Planning for Heirs

Many families worry about the impact inherited wealth may have on children and grandchildren. Some heirs are highly charitable and community oriented, while others may feel unprepared to manage substantial inherited assets responsibly.

DAFs can provide a more measured and constructive structure for charitable inheritance planning.

Rather than leaving children the responsibility of immediately managing private foundations, complicated charitable trusts, or direct charitable distributions, families may use a DAF to create a simpler charitable vehicle with lower administrative burden and ongoing flexibility.

In some cases, parents intentionally divide estate assets between personal inheritance and charitable inheritance through a DAF, allowing heirs to participate in grantmaking without placing them in charge of complex legal entities.

One widow, after inheriting significant wealth from her late husband, became concerned that future generations might lose connection to the family’s longstanding commitment to community service. Her advisors recommended incorporating a DAF into the estate plan, accompanied by a family mission statement outlining the causes and principles most important to the family. Her grandchildren now participate annually in recommending grants to organizations focused on education, food insecurity, and conservation, while learning about stewardship, generosity, and the importance of aligning resources with values and community impact.

For many families, the charitable conversations themselves become just as important as the grants.

Coordinating Retirement Assets and Tax Efficient Giving

DAFs are also increasingly incorporated into retirement and beneficiary planning strategies.

Retirement accounts such as IRAs can create substantial tax exposure when inherited by children or other non spouse beneficiaries. In contrast, qualified charities generally receive these assets income tax free.

As a result, many estate plans now direct taxable retirement assets toward charitable goals, while leaving more tax efficient assets to family members.

In some cases, a donor may name a DAF as a partial beneficiary of retirement accounts, particularly when charitable intent is already part of the family’s broader financial picture.

For example, a retired couple with substantial IRA balances realized that their children would likely inherit heavily taxable retirement assets. Working with their advisors, they designated a percentage of their retirement accounts to fund a DAF at the second spouse’s death. Their children inherited other assets with more favorable tax treatment, while also serving as successor advisors to the charitable fund. The approach reduced overall tax exposure while helping ensure the family’s charitable legacy remained aligned with both financial efficiency and deeply held values.

A Growing Part of Modern Estate Planning

DAFs are not appropriate for every donor or every planning situation. Families considering charitable strategies should work closely with qualified legal, tax, and financial advisors to evaluate the structure that best fits their goals.

Still, the growing popularity of DAFs reflects a broader shift in how many families think about wealth. Increasingly, charitable planning is no longer viewed simply as an end of life tax strategy. Instead, it is becoming part of a larger conversation about purpose, family identity, stewardship, and long term community impact.

For attorneys and advisors, understanding how DAFs intersect with estate planning has become increasingly important. For families, these tools may offer an opportunity to create not only financial efficiency, but also a more thoughtful, values aligned, and enduring charitable legacy.

Michael L. Thompson, CAP®, AEP®, is founder of Aligned Giving and a former wealth advisor who works with individuals, families, nonprofits, and advisors to move charitable planning beyond tax strategy toward values-based impact and long-term philanthropic alignment.