How To Make a Bequest to a Donor Advised Fund

Integrating strategic charitable giving into your estate planning can create powerful opportunities to leave a lasting legacy while potentially maximizing tax benefits for your estate. Donor advised funds (DAF) are an essential tool for this, offering donors the ability to make an immediate impact during their lifetime while also providing an excellent option for planned giving through bequests.

Whether you’re seeking to support multiple charitable organizations, provide flexibility for future generations to continue your philanthropic vision, or create a more streamlined system for your estate-based charitable giving, a bequest to a donor advised fund may offer unique advantages that traditional direct charitable bequests can’t match.

We’ll walk you through the essential steps and considerations for making a bequest to a donor advised fund, helping you create a charitable legacy that reflects your values and supports the causes you care about most.

Ready to explore how a DAF bequest can enhance your estate plan and amplify your charitable impact? Contact Jennifer Touchet, Vice President of Personal and Family Philanthropy, at 713-333-2228 to discuss your philanthropic goals and begin planning your charitable legacy today.

Key Insights

• Making a bequest to a donor advised fund introduces the flexibility of donor advised funds into your estate planning, allowing you to create a lasting philanthropic legacy that can adapt to changing community needs over time.
• Unlike direct charitable bequests to specific organizations, DAF bequests provide succession planning opportunities that enable multiple generations of your family to continue your charitable vision.
• Charitable bequests to donor advised funds qualify for potential estate tax deductions, giving you the opportunity to reduce your estate’s tax burden while maximizing the charitable impact of your gift.
• The bequest process involves choosing the right DAF provider, consulting with estate planning professionals, updating your will or trust with specific language, and notifying your chosen sponsor of your intentions.
• DAFs offer unique advantages for estate-based giving, including professional management, investment growth potential, and the ability to support multiple charitable organizations through a single charitable vehicle.
• Some  DAF providers, like Greater Houston Community Foundation, allow you to endow your donor advised fund and create a perpetual legacy.

Table of Contents

• What is a bequest in a will?
• What is the difference between a gift and a bequest?
• What is a donor advised fund?
• Why make a bequest to a DAF?
• How to make a bequest to a donor advised fund
• Donor advised fund rules and considerations
• Your long-term partner

What is a bequest in a will?

A bequest is a gift made through your estate plan that takes effect after your lifetime, allowing you to support charitable causes as part of your overall legacy strategy. Unlike immediate charitable gifts, bequests are incorporated into your will or trust documents and are executed according to your specific instructions after your passing.

Bequests can be structured using a number of asset types, giving you flexibility in how you choose to support charitable causes. Common assets used in charitable bequests include:

• Cash: Direct monetary gifts specified as fixed dollar amounts
• Securities: Stocks, bonds, and other investment holdings
• Real estate: Residential, commercial, or undeveloped property
• Personal property: Art, jewelry, collectibles, and other valuable items
• Retirement accounts: IRAs, 401(k)s, and other qualified plans
• Life insurance: Naming a charitable organization as beneficiary

Continue reading: What is a bequest?

Types of bequests

There are several types of bequests you can consider when planning your estate:

• Specific bequests designate particular assets or fixed dollar amounts to charitable organizations. 
• Residual bequests direct a percentage of your estate’s remainder after other distributions are made. 
• Contingent bequests activate only under certain circumstances, for instance, when primary beneficiaries predecease you.

What is the difference between a gift and a bequest?

Immediate charitable gifts and bequests both have their place in your overall giving strategy, but they serve very different purposes. Your professional advisors can help you decide when a gift may be preferable to a bequest, or vice versa, but there are some differences you should know.

Any comprehensive estate planning strategy should feature both immediate gifts and bequests, whether to donor advised funds or otherwise. A good balance of the two can help donors maximize impact and ensure financial stability during their lifetime. 

What is a donor advised fund?

A donor advised fund is a charitable investment account that allows you to make tax-deductible contributions, invest those funds for potential growth, and recommend grants to qualified nonprofit organizations over time. DAFs have become increasingly popular due to their simplicity, flexibility, and powerful tax advantages.

How does a DAF work? At the Community Foundation, it’s a straightforward process:

1. Contribution. You contribute cash, securities, or other assets to establish your DAF account.
2. Investment and growth. Your contributed funds can be invested according to your preferences, growing tax-free.
3. Grant recommendations. You recommend grants to qualified charitable organizations of your choice.

The benefits of giving through a DAF extend beyond simple tax advantages; they also offer exceptional flexibility in timing your charitable distributions, allowing you to contribute during financially advantageous years while distributing grants according to your philanthropic timeline.

DAFs can simplify your charitable giving by consolidating multiple charitable interests into a single account, with streamlined administration and tax reporting. They also provide investment opportunities for tax-free growth, potentially increasing the total amount available for charitable purposes.

Continue reading: What is a DAF?

Can you inherit a donor advised fund?

While you cannot technically “inherit” a donor advised fund in the traditional sense, you can establish succession plans that allow advisory privileges to transfer to designated successors after your lifetime. When you establish a DAF, you can name successor advisors—typically family members like your spouse or children, but also advisors or professional associates—who will have the authority to recommend grants from the fund after you’re gone.

This succession planning feature makes DAFs particularly powerful tools for multi-generational philanthropy, but it’s important to note that successor advisors receive advisory privileges rather than ownership of the assets themselves.

Can someone donate to my donor advised fund?

Yes, many donor advised funds can accept contributions from multiple donors, though policies vary among different DAF sponsors. This can create opportunities for collaborative giving and can enhance the impact of your charitable fund through additional contributions from family members, friends, or other individuals who share your philanthropic interests.

Some DAF sponsors allow you to publicize your fund’s charitable focus, potentially attracting like-minded donors who want to support similar causes, but policies about additional contributions and disclosures vary significantly from sponsor to sponsor and fund to fund.

Why make a bequest to a DAF at the Community Foundation?

Making a bequest to a donor advised fund creates a powerful bridge between your estate planning objectives and your charitable goals, offering unique advantages that traditional direct bequests to individual charities often can’t match.

• Legacy flexibility and continuity: A DAF bequest allows your charitable legacy to adapt to changing circumstances and evolving community needs. Rather than locking your estate into supporting specific organizations that may not exist or may have changed missions by the time your bequest takes effect, a DAF gives your successors or the sponsoring organization flexibility to direct funds where they can have the greatest impact and in accordance with your statement of donor intent. 
• Endowment and perpetual giving: Unlike some sponsoring organizations, Greater Houston Community Foundation allows donors to endow their DAFs, creating a perpetual charitable vehicle without the complexity of forming a private foundation. Donors can choose to endow funds upon succession, establishing a legacy that provides charitable resources for future generations. With an endowed fund, you can designate how annual distributions are made, whether to specific charities, to a scholarship fund, or to a cause you care deeply about. 
• Family involvement and succession planning: DAFs enable philanthropic engagement for the whole family by allowing you to name family members as successor advisors. 
• Tax optimization and estate tax benefits: Tax benefits of a donor advised fund extend to estate planning, where charitable bequests to DAFs qualify for charitable estate tax deductions. This can significantly reduce your estate’s tax liability while maximizing the charitable impact of your bequest.
• Professional management and expertise: Community foundations and other DAF sponsors provide professional management, investment oversight, and philanthropic expertise that can be indispensable. The Community Foundation offers third-party investment management for accounts over $500,000.

Continue reading about the tax benefits of a donor advised fund

Can I create an endowment through my DAF? The transformative power of endowments.

For those wondering about the applications for endowments, consider this example:

Mr. and Mrs. LaBounty have always been passionate about supporting small and mid-size emerging arts organizations during their lifetime, but they know that sometimes those organizations don’t make it. 

They establish an endowment for the arts in Houston through a bequest into a field of interest fund at the Community Foundation. When those assets arrive into that fund, the expert team at the Community Foundation identifies which organizations match the intent of the LaBounty’s and have reached sustainability.  

Their endowment will last in perpetuity, so even 100 years from today, small arts organizations in Houston will get much needed funding and there will continue to be a thriving arts scene, in part, because of the vision and gifts of the LaBountys.

How to make a bequest to a donor advised fund

Creating a bequest to a donor advised fund is simple, but requires coordination with professional advisors to make sure your charitable intentions are properly documented and legally enforceable.

1. Choose the right sponsoring organization

Selecting an appropriate DAF sponsor is the first step in making sure your bequest aligns with your values and philanthropic goals. Consider the organization’s reputation, investment options, fee structure, geographic focus, and succession planning policies. Community foundations like Greater Houston Community Foundation often provide excellent DAF services with deep local knowledge and strong community connections.

2. Consult with estate planning professionals 

Work with qualified estate planning attorneys, financial advisors, and tax professionals who have a deep understanding of interconnected charitable giving strategies. These advisors can help structure your bequest to maximize tax benefits while ensuring it integrates seamlessly with your overall estate plan. At the Community Foundation, we collaborate with your trusted professional advisors to integrate giving into your overall financial and estate plans seamlessly. 

3. Draft or update wills, trusts, and your estate plan

Your estate planning documents must include specific language that clearly identifies the DAF sponsor and your intentions for the bequest. Precision in drafting is essential to avoid any complications during estate administration.

4. Sample bequest language 

While language should be drafted carefully and with professional oversight, bequest language in official documents usually looks something like this:

“I give, devise, and bequeath to the Greater Houston Community Foundation, a Texas nonprofit corporation (the “Community Foundation”), the following assets: [Insert specific assets, dollar amount, percentage, or residuary] to be added to my existing donor advised fund [Fund Name], or if no such fund exists, to establish a donor advised fund in my name to support charitable purposes.”

5. Notify your DAF provider 

Inform your chosen DAF sponsor about your bequest intentions. While not legally required, this notification allows the organization to acknowledge your planned gift and begin discussions about your charitable preferences and succession planning.

Donor advised fund rules and considerations

While donor advised funds are often simple for donors to use, there are some important regulatory and practical considerations that should be considered:

• Qualifying for tax deductions

DAF bequests qualify for charitable estate tax deductions only when they’re made to qualified 501(c)(3) organizations. The full value of your bequest can be deducted from your taxable estate, potentially resulting in significant tax savings.

• Restrictions and limitations

While DAFs offer considerable flexibility, they operate under IRS regulations that require grants to be made only to qualified charitable organizations. Additionally, DAF sponsors maintain ultimate legal oversight over distributions, though they typically honor donor recommendations for legitimate charitable purposes. However, the IRS prohibits bifurcated donations from donor advised funds (DAFs), meaning grants cannot be split between tax-deductible and non-deductible portions.

• Estate and gift tax implications

Charitable bequests to DAFs are not subject to estate taxes, and properly structured bequests can help reduce the overall estate tax burden on your beneficiaries. Understanding these implications helps maximize both your charitable impact and your family’s financial inheritance.

• Updating or revoking a bequest

Bequests can be modified or revoked through amendments to your will or trust documents. Regular review of your estate plan ensures your charitable bequests continue to reflect your current intentions and circumstances.

Additionally, you should always regularly review and update your estate plans, communicate your intentions with both your family and your sponsoring organization, and keep your documentation organized and accessible. 

Combining DAF bequests with other charitable giving strategies, like donating appreciated stock, can also maximize your overall philanthropic impact and tax benefits. Your collaboration with professionals can help you stay abreast of rules and regulations as well as help your giving reach new heights—for you and the communities you care about most. 

Looking for a charitable organization for long-term partnership? The Community Foundation is here. 

Making a bequest to a donor advised fund is an incredibly powerful strategy for combining estate planning with charitable giving, which can offer you flexibility, tax advantages, and the opportunity to create a lasting philanthropic legacy.

Because of how complex estate planning and charitable giving regulations can be, consulting with experienced professionals is essential for developing a strategy tailored to your unique circumstances and goals. 

Greater Houston Community Foundation is ready to partner with you in creating a charitable legacy that reflects your values and supports the causes you care about most. Our experienced team can help you explore DAF options, coordinate with your professional advisors, and develop a comprehensive approach to giving that maximizes both your immediate impact and your long-term legacy.

Ready to begin planning your charitable legacy? Call Jennifer Touchet, Vice President of Personal and Family Philanthropy, today at 713-333-2228 or reach out directly to start a conversation.

More Helpful Articles by Greater Houston Community Foundation: 

• How To Preserve Generational Wealth
• What Is the Great Wealth Transfer?
• How To Get Started with Legacy Giving
• The Power of Collective Giving
• How Charitable Giving Can Enhance Your Legacy Planning

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