A donor-advised fund (DAF) can be a flexible way to support the causes you care about, and with the charitable deduction changes that took effect in 2026, it is getting a fresh look from many donors. Below, we explain what a donor-advised fund is, how it works, seven potential benefits, and how a strategy called “bunching” may fit under the new rules. But first, a story.
The Rice and Chessboard Legend: A Lesson in Exponential Impact
Have you heard the ancient legend about a ruler who wanted to reward one of his servants for their incredible bravery? The story goes that when the ruler asked the servant what they desired, the servant made a surprising request: grains of rice. Specifically, one grain of rice for the first square of a chessboard, then double the amount for each subsequent square.
The ruler, thinking the request to be modest, agreed. What he didn’t realize was that by doubling each previous square’s contents over 64 squares, he was promising the servant over 18 quintillion total grains of rice!1
We love this legend because it shows the power of exponential growth. For that reason, it’s common to see the story as an object lesson for investing.
Today, though, we're sharing it for a different reason:
The power of charitable giving.
When it comes to charitable giving, the impact of even a single donation is often quite a bit larger than it may seem. When a single life is changed, that person can go on to affect even more lives. Each change creates a ripple effect that can be as exponential as grains of rice on a chess board.
But how can you help your charitable giving have this kind of effect? How can we create the biggest impact on our community? It’s a question worth asking. One answer worth exploring is a donor-advised fund.
What Is a Donor-Advised Fund (DAF)?
A donor-advised fund is a type of charitable giving account, held by a sponsoring public charity, designed specifically to help people support charitable organizations they care about. Here’s how a donor-advised fund works: you contribute cash, appreciated securities, or other eligible assets to the fund. Contributions are generally tax deductible in the year you make them if you itemize, subject to IRS limits, and the money in that fund can then be granted out over time to the qualified charities you recommend.
How a Donor-Advised Fund Can Create a Chessboard-Sized Impact
Take the example of the Salwen family. Back in 2008, they decided to sell their mansion in Atlanta and downsize to a home roughly half the size. That in itself is not so remarkable. What was remarkable is that they decided to donate half of the sale to charity.
When they found a cause, they contributed to a donor-advised fund. They called their fund Hannah’s Lunch Box Fund. (That’s a nifty feature of a donor-advised fund; you can create a name for it within the sponsor’s guidelines.) Today, the Salwens still grant money from this fund to various projects. For example, their fund often provides education and materials to villagers in impoverished countries on how to become self-reliant. According to the National Center for Family Philanthropy, this work has reached hundreds of lives. 2
That’s why a donor-advised fund can be so useful for long-term charitable giving. It’s a way of being able to continuously support the causes you care about, because the money in the fund can grow over time (though, like any investment, it can also lose value) and be granted out when you recommend.
Donor-Advised Funds and the 2026 Charitable Deduction Changes
Keep in mind that the charitable deduction rules changed in 2026 under the One Big Beautiful Bill Act. For those who itemize, charitable deductions now generally count only above 0.5% of adjusted gross income (AGI), and for those in the top tax bracket, the deduction’s value is generally capped at 35%.
There is also a new charitable deduction for people who don’t itemize: up to $1,000 for single filers and $2,000 for married couples filing jointly. However, it generally applies only to cash gifts made directly to qualifying charities. Contributions to a donor-advised fund don’t count toward it.
Bunching Charitable Donations With a Donor-Advised Fund
Because a donor-advised fund lets you contribute in one year and recommend grants over several, some people use one to “bunch” several years of giving into a single tax year. Bunching may help a larger share of your giving clear the standard deduction and the new 0.5% AGI floor in the year you contribute, while the charities you support can still receive grants on your usual schedule. Whether bunching makes sense depends on your full tax picture, so it’s worth reviewing with your tax professional.
7 Benefits of a Donor-Advised Fund
The way we see it, there are seven key benefits of a donor-advised fund.
You may be able to take a charitable tax deduction in the year you contribute, if you itemize and subject to IRS limits.
The money in your fund can be invested and generally grow tax-free over time. Please note that investments involve risk and can also lose value.
You can recommend how the money is invested, from the options your sponsor offers.
By putting all your funds for charitable donations into one account, it can simplify the donation process.
You can recommend when grants are made. You could contribute today and then recommend grants years from now.
The fund can be one way to create a lasting philanthropic legacy for yourself, or to recognize a loved one’s legacy if you choose to name it after them.
Finally, your fund can contribute to and support multiple charities.
Is a Donor-Advised Fund Right for You?
There you have it: seven reasons to consider a donor-advised fund. It can be a convenient and flexible way to give back to our community. And when we give back, the funds we donate can have the impact of doubling the grains of rice on a chessboard.
What could be a greater legacy than that?
If you’d like to learn more about setting up a donor-advised fund, bunching charitable donations under the 2026 rules, or other charitable giving strategies, please let us know. We’re here to help you work toward your goals and the legacy you want to leave.
1 https://www.mathscareers.org.uk/the-rice-and-chessboard-legend/
2 https://www.ncfp.org/knowledge/donor-advised-fund-impact-story-giving-up-a-lifestyle-to-give-back/
Hilltop Wealth Advisors is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.