Dec. 30, 2022

Donor Advised Funds: Optimized Giving

I recently learned about the many advantages of Donor Advised Funds (DAF’s) at PhysicianOnFire and FrugalWoods blog. It was a little tough to understand at first, but this is a great way to optimize your giving and your tax situation. I think it’s something that many people should consider if they regularly give to charity.

How Does It Work?

For most members of the Church of Jesus Christ of Latter-day Saints, paying tithing is relatively simple. We fill out a slip in person or online, designate where the money goes and hand it to the Bishop, or push the submit button. For those of other faiths, DAF’s also work for any 501(c)(3) charity. A DAF is a special vehicle specifically for charitable donations. It’s possible to donate cash, stocks and other securities and thereby avoid paying capital gains tax on assets. Once a donation has been made, it is considered irrevocable, and there is no getting the money out of the fund. As the account holder, you do have discretion over the money inside the fund, and can choose when and where to donate. The money in the fund can be invested in different ways. I found myself becoming increasingly interested as we tithe 10% of our “increase” or income to our church. In discussing with my wife there were some concerns that arose.

Donor Advised Fund Concerns

Since money in a DAF can be invested and earn interest or capital appreciation just like any other investment fund, it is in theory possible to put in enough money to create a tithing machine. For example, we could put $200,000 in there and at 5% interest, produce 10k per year, and our donations wouldn’t even use all the interest we made off the initial balance. We’d have a perpetual tithing machine. This scenario isn’t realistic for us, but might be for others.

Tithing Earning Interest? What About Sacrifice

My wife wasn’t sure it was right to put tithing money into an account that can be invested and generate more money. Do we then tithe on that increase? I tried to explain that in this case, all the increase is tithed. What if our investments go down? That wouldn’t be ideal. We also discussed the aspect of sacrifice, and if this might diminish the feeling that tithing is a sacrifice if the money we put in generates yet more money. For wealthy people, putting 1 million to tithing out of 10 million probably doesn’t feel like a huge sacrifice.

Resolving Our concerns

After many discussions we came to some realizations. Every month we fast, or go 2 meals without food and drink (about 24 hours). The scriptures teach us not to make this obvious and disfigure our faces or indicate that we are fasting, but just to act normal. Sometimes fast Sunday’s are difficult to get through and you run low on energy. Certain people like to really feel that pain and discomfort and use the hunger pangs to help them remember to pray and humble themselves. This is fine, and I’ve taken this approach before. Others may find that certain foods, or simply hydrating more than usual in the days leading up can help the fast go a bit easier. There is no guidance given by the church on this matter, but I try to take a smart approach to fasting. I like to actually do stuff and play with my kids, instead of laying around all Sunday.

Similarly, Adam was told that by the sweat of his brow he would eat bread, or that he has to work to get what he needs. Does that mean that I would be more worthy of bread if I were a blue collar worker instead of a white collar worker? I don’t tend to think so.

Does God Need Money?

Does God need the 10% tithing that I or anyone else pays? I don’t think so, but I do think that He needs our obedience. There is little guidance on tithing, church leaders do not (or should not) specify what constitutes a full tithe. Some suggest paying on gross, while others pay on net. Some pay on capital appreciation and investment dividends while others do not. I’ve even heard of some paying on the value of their employer benefits. I don’t wish to delve into this too deep, it is a personal thing to be worked out by each person and family. Pray and counsel with the Lord on the matter, study it out and make your own determination on what your honest tithe is.

Without going any deeper into that, the requirement is simply 10% of our increase. So paying smarter through a DAF satisfies the requirement in my mind. I think of the Parable of the Talents, and how the Lord rewards wise stewards who manage money well. In my mind, using a DAF is a smarter way to tithe.

Which Company Do I Use?

I had originally planned to use Fidelity, as they have a lower minimum donation. VanguardCharles Schwab and other investing platforms have their own versions. Fidelity also have a handy quiz to help decide if a DAF is right for you. Then I learned about Deseret Trust Company (DTC) from a friend. They are affiliated with the church that I attend, and my wife and I feel more comfortable going this route. Church leadership holds positions on the board and their governing principles align with the “same principles common to Church operations.”

The company was created in 1972 to handle gifts to the church’s university, but expanded to include the church itself and other affiliated schools and charities. It was comforting to know that this has been around a while and there are likely more people donating in this way than I originally imagined.

How to Set Up a DAF With Deseret Trust Company

On the homepage you’ll find a button that says “Setup a Donor-Advised Fund (DAF)

Donor Advised Fund Application
Click this button

You’ll be taken to a page where you can apply online, or download a PDF file to fill out and mail in.

Donor Advised Fund Application
I applied online, but you can download the PDF and mail that in

Similar to any other account you make, you then fill out your name, address, email, phone numbers, etc. You can add an advisor to your account, so my wife and I are both on this DAF. You can also add a successor, which is kind of like a beneficiary. The successor won’t get the money in the account, there’s no way to get it out. They will take over as the advisor and decide when and where to donate going forward. This can be changed anytime, but I believe it requires a form to be mailed in. I named my in-laws our successor.

Choosing a Name and Investments

Next, your fund needs a name. It can be something as simple as “Smith Family Charitable Fund” or something more vague. Don’t spend too much time on this. I left the “Account Comment” blank. The minimum amount you must start with is $5,000, and you can donate cash, bonds, mutual funds, etc. Cash doesn’t require a ticker or the amount of shares to be filled out.

Donor Advised Fund Application

Desert Trust Company Funds

DTC has 5 funds to choose from and all of your money has to be put into one of these funds. For example, I can’t put $1000 in each fund. I called to get more information and found out that the money market is near industry standard, and pays around 2% these days. That’s competitive with most online banks. The High Income 100% Fixed intrigued me and that is the fund that I chose, but I considered the Income Fund too. I’m not completely sure if this is some sort of dividend paying fund, like a REIT, but right now this pays around 5-6%.

All of these options are conservative by nature, so depending on your time horizon, you might want to choose something more aggressive. Even the most aggressive growth fund is still 30% fixed, and I’m pretty sure it will not keep up with the S&P500. You will not ride as high as the market, but you also won’t go as low if it corrects. I should also note that this DAF charges a 0.9% maintenance fee charged monthly. Even the Money Market Fund more than covers this charge.

Finishing Touches

There is a checkbox giving you the option of being contacted by a philanthropic advisor which I selected, but haven’t heard from them yet.

Finally you sign and date an agreement that states you understand the rules, policies and terms. You confirm your details are correct and that you will update them if it changes and that they have full legal control over the money in the account. Acknowledge that you don’t rely on DTC for Tax advice, they are going to verify your information and so on.

That’s it, you now have a Donor Advised Fund and are ready to go.

How a Donor Advised Fund Helps Me

I recently sold a house and had some equity. Once my tax advantaged accounts were taken care of, we put most of the leftover into a Vanguard brokerage, probably too much. I don’t want to pull money out of Vanguard because it would be subject to short term capital gains tax. We’d like to strengthen our cash position for other potential investments. By opening the DAF and funding it with Vanguard money, tithing is not coming out of my paycheck for the next several months, and we’re able to strengthen my cash position much faster.

Itemizing On Taxes

When you donate appreciated funds to a DAF, you get the tax break in that year. The $5,000 I initially put into the DAF will cover my tithing through the rest of the year and beyond. The plan is to fund the DAF for 2020 in December of this year, which will allow me to itemize for 2019, resulting in big tax savings. With the standard deduction for married filing jointly at $24,000, it is very difficult to itemize anymore. I’d get somewhat close each year but never be able to do it normally. Now I can itemize one year and not get anywhere close the next year, which can save thousands in taxes as time goes on.

Key Points

  • You get the tax deduction for the year you contribute to your DAF. After that, you can divvy it out as you see fit.
  • You can avoid capital gains tax.
  • Your money can stay invested.
  • You may be able to itemize some years with strategically timed donations.
  • Once it’s in the DAF, there’s no going back. You can’t withdraw.
  • If you sit on the money too long (years), the fund can potentially make donations for you.
  • If the parent company goes under, so can your funds. This seems unlikely to happen to Deseret Trust Company, but anything is possible of course.


The DAF we set up is going to allow our household to be more generous. We will save on taxes, strengthen our cash position, and have more money for ourselves and more money for charity. It’s an exciting way optimize charitable contributions and I’m excited to use it. Once the funds hit the account and I make my first donation, I’ll post a tutorial on that. Have you considered using a DAF? Why or why not?