You may have heard that women tend to give more of their money to non-profits than men. Here’s what you might not know: The higher the income, the bigger that gap becomes. And as a financial advisor on Ellevest’s Private Wealth Management team, I get to work with a lot of women who are passionate about giving. (Yep, it’s one of the best parts of my job.)

Giving is powerful — it makes you happier, teaches children generosity, and often has a ripple effect in the larger community — but the goal is to do it in the most efficient way possible so that you’re making the biggest impact you can.

Some families establish traditional, private charitable foundations, which can be fantastic. But it’s not the only option. Donor-advised funds (DAFs) are often a simpler, more accessible way to give — how you want, when you want.

What is a donor-advised fund?

Like private foundations, DAFs are philanthropic tools. But a private foundation is a stand-alone organization. That means the stakeholders involved in setting it up (you, or your designee) also have to run it. That can take a lot of time … and get expensive.

A DAF, on the other hand, is established by you but administered by a “sponsoring organization,” usually a 501(c)(3). (The sponsoring organization for Ellevest clients is Schwab Charitable.) In essence, a DAF allows you to contribute assets to a fund without having to manage the actual investing, paperwork, and other logistics. Then the fund’s assets have the opportunity to grow while you’re considering where and when to donate them. If your DAF is over a certain size^*, you can often choose to have an investment advisor (like Ellevest) advise on the fund’s investment strategy.

Why donor-advised funds = “giving smarter”

DAFs have lots of advantages. First, because sponsoring organizations are 501(c)(3)s, they’re qualifying charitable organizations with the IRS. That means your initial contributions to your DAF are tax deductible, which would mean you could get the tax benefits right away^**, even if you want to take more time to decide which charities you’ll gift the money to. In other words, you can separate tax planning from donation planning. And we know we are all always looking for ways to lower our tax bill.

(Keep in mind: Because DAF contributions are irrevocable, once you contribute those assets, they aren’t yours anymore. So you won't be able to write off any investment income your DAF earns. On the bright side, that income means you have more to give.)

You can contribute more than just cash, too. That’s especially helpful if you’re looking for a tax-efficient way to diversify a concentrated stock position or another type of appreciated asset (like real estate that’s worth way more than it was when you bought it). If you were to sell something like that, you’d very likely have to pay capital gains taxes. But assuming you’ve owned the asset for at least a year, donating it via a DAF means you won’t have to pay that capital gains tax.

When you roll over that one big chunk of appreciated stock into a DAF, you can use it to make cash donations to multiple charities over several years (or even decades), plus you get to take advantage of the tax deduction, give the amount you want to the charities you want, and avoid paying taxes on the gain. (Again, with potential tax changes looming, this option may be more important to consider than ever.)

Donor-advised fund FAQs

How much control will I have over the investments in the fund?

That depends on whether you’ve qualified (and chosen) to use an investment advisor for your DAF. If so, then that advisor will — you guessed it — advise your sponsoring organization on the investment strategy. You can discuss that strategy with your advisor and tell them if you have preferences, and if it’s possible to turn those preferences into reality, then your advisor can work to make it happen.

If you have a smaller DAF, it’s just you and the sponsoring organization. They usually present you with a range of investment options to choose from. Then they “take your guidance” about which of those investment options you want to use for your fund (aka they pretty much just do what you say).

Also, when you donate complex assets, like real estate or stock, the sponsoring organization will take the work of liquidating those assets off your plate — and you don’t get much control over that. Because the sponsoring organization has a vested interest in the assets you’ve donated (since they now technically own them), they’re going to want to avoid risky things like concentrated positions, too.

How much control will I have over my donations?

While there’s no minimum annual distribution (aka donation) required by law, the sponsoring organization may have its own rules regarding how much of your DAF you need to distribute each year^***. Still, typically you'll be allowed to distribute the majority of your assets in your own time, without feeling rushed.

Can I give anonymously?

Yes. Unlike private foundations, the activities of which are public record, donations from a DAF can often be made anonymously.

What about my family’s legacy?

Though they don’t have to be, private foundations are often set up in perpetuity, so it’s easy for the donors to continue the tradition of giving through generations. That’s also possible with DAFs, but again, it can depend on the sponsoring organization.

The less obvious way your donor-advised fund could change the world

Let me ask you a question: Shouldn’t the money you’ve set aside to change the world also get the chance to do so while you’re deciding who to give it to?

This is my favorite part about DAFs: The non-profits that ultimately receive your donations don’t have to be the only parties who benefit. If your DAF is invested with intention, you can do good while you’re planning to do good.

Some investment strategies are solely focused on traditional investment strategies, which is OK. But here’s the thing — the “market” is filled with companies that might have values that are totally in conflict with what you want your philanthropy to do.

For example, would you want to invest the assets you’ve earmarked to help the environment in a fund that includes companies that are actively hurting the environment? I’m guessing you wouldn’t. Instead, your financial advisor can help you minimize the number of fossil-fuel-driven companies in your portfolio, while making sure it stays diversified.

But an environmentally-focused DAF portfolio is just one example. You might have heard this before: At Ellevest, we have a particular passion for the advancement of women everywhere. And, if a client does too, our team can intentionally direct the investments in their DAFs to do just that.

When it comes to giving, there’s no one-size-fits-all solution. But my personal passion is helping clients give in a way that helps them do good for the world (and especially for women) while they’re deciding which charities to support — and DAFs have become a serious option for women who want that option.