Donor Advised Funds vs Charitable Trusts

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If you care about giving back and you want your generosity to work smarter for you, you have options. Two of the most powerful charitable giving tools in estate planning are donor advised funds (DAFs) and charitable trusts. Both let you support causes you believe in, and both come with real tax benefits. But they work very differently, and choosing the wrong one can cost you money or leave your goals unmet. At Slowik Estate Planning in Atlanta, Georgia, we help clients figure out which tool fits their situation. This page breaks down both options so you can make a confident, informed decision.

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What Is a Donor Advised Fund?

A donor advised fund is one of the simplest ways to give to charity with a tax strategy behind it. Generally, a donor advised fund is a fund or account in which a donor can, because of being a donor, advise the fund how to distribute or invest amounts held in the fund. Think of it like a charitable savings account. You put money or assets in, claim your tax deduction right away, and then recommend grants to the charities you want to support over time.

Here is what makes a DAF so useful. The deduction limit for cash gifts to public charities, including donor advised funds, is 60% of adjusted gross income (AGI), while the limit for non-cash gifts like stock held more than one year is 30% of AGI. That is a significant deduction for high earners. You can also contribute appreciated assets like stocks and avoid paying capital gains tax on the appreciation.

Once your contribution is in the fund, the money can grow. Once the contribution is made, the funds can be invested and may grow tax-free. You do not have to decide which charities to support right away. The donor can recommend grants over time, involve family members in giving decisions, and support evolving charitable priorities without being rushed to select recipients in the current year.

There is one important limitation to know. A qualified charitable distribution (QCD) cannot be made to a DAF. So if you are over 70½ and thinking about using your IRA to fund charitable giving, a DAF will not work for that purpose. You would need to look at other options.

DAFs are also flexible in terms of where you open them. A DAF can be opened through most major financial institutions or through a local community foundation. They are generally low-cost and easy to set up. If you want a simple, flexible way to give now and decide on recipients later, a DAF is worth a serious look. An estate planning attorney in Atlanta can help you determine whether a DAF fits into your broader plan.

What Is a Charitable Trust?

A charitable trust is a more formal and structured giving vehicle. It is a legal arrangement that splits the benefit of your assets between charitable and non-charitable beneficiaries. There are two main types you will encounter in estate planning: charitable remainder trusts (CRTs) and charitable lead trusts (CLTs). Each one serves a different purpose depending on whether you want income now or want to pass assets to family later.

Charitable remainder trusts are irrevocable trusts that let you donate assets to charity and draw annual income for life or for a specific time period. With a CRT, you get paid first, and the charity gets what is left. The trust pays income to at least one living beneficiary, the payments continue for a specific term of up to 20 years or the life of one or more beneficiaries, and at the end of the payment term, the remainder of the trust passes to one or more qualified U.S. charitable organizations. The remainder donated to charity must be at least 10% of the initial net fair market value of all property placed in the trust.

There are two types of CRTs. A charitable remainder annuity trust (CRAT) pays a specific dollar amount each year. The amount is at least 5% and no more than 50% of the value of the corpus when the trust is established. A charitable remainder unitrust (CRUT) pays a percentage of the value of the trust each year to non-charitable beneficiaries. The payments generally must equal at least 5% and no more than 50% of the fair market value of the assets, valued annually.

A charitable lead trust works in the opposite direction. A CLT distributes payments annually to a charitable organization for a select number of years, or for the lifetime of named individuals. Once the payment term ends, the remaining interest is paid out to either the donor or one or more non-charitable beneficiaries. This makes a CLT a powerful wealth transfer tool, especially if you want to reduce estate and gift taxes while still benefiting a charity.

Georgia charitable trusts are governed under the Revised Georgia Trust Code, found in O.C.G.A. Title 53, Chapter 12. Article 9 of that chapter specifically addresses charitable trusts, and Article 10 covers provisions relating to certain private foundations and trusts. These state rules work alongside federal IRS requirements. If you are considering a charitable trust, working with a qualified asset protection lawyer who understands both Georgia and federal law is important.

Key Differences: DAFs vs. Charitable Trusts

So how do you decide which one is right for you? The answer depends on your goals, your assets, and how much structure you want. DAFs and charitable trusts are both powerful tools, but they serve different purposes. Let us walk through the most important differences.

First, consider control and flexibility. With a DAF, you keep advisory control over which charities receive grants and when. You can change your mind about recipients at any point. With a charitable trust, the terms are locked in when you sign the trust document. Charitable remainder trusts are irrevocable. Assets that go in cannot be taken back. The same is true for charitable lead trusts. Once you fund the trust, the structure is fixed.

Second, think about income. A CRT pays you or your beneficiaries income during the trust’s term. A DAF does not pay you any income. The DAF simply holds your contribution until you recommend grants. If you need a stream of income from your charitable giving strategy, a CRT may be the better fit.

Third, consider complexity and cost. DAFs are simple to open and maintain. Charitable trusts require a formal trust document, a trustee, and annual tax filings. The IRS requires charitable trusts to file annual Form 5227 and comply with specific distribution rules. That adds administrative cost and responsibility.

Fourth, think about tax timing. Upon creation of a CRT, the taxpayer (donor) will receive a charitable deduction on their income tax return equal to the present value of the remainder that eventually is donated to charity. With a DAF, you get the deduction in the year you fund the account, even if you do not recommend grants for years. Both offer upfront deductions, but the calculation method is different.

Finally, consider your estate planning goals. Charitable trusts can reduce estate taxes and transfer wealth to heirs. DAFs do not provide estate tax benefits in the same way. If reducing your taxable estate is a priority, a charitable trust may offer more value. Reach out to Slowik Estate Planning to talk through which option aligns with your goals.

New Tax Rules in 2026 and What They Mean for Your Giving Strategy

The tax rules around charitable giving changed significantly starting January 1, 2026, under the One Big Beautiful Bill Act (OBBBA). If you are planning major charitable gifts, these changes matter a lot. Understanding them now can help you make smarter decisions going forward.

New federal tax laws effective as of January 1, 2026, will change how charitable deductions work for most taxpayers. Adopted under the One Big Beautiful Bill Act, the new rules may affect anyone who makes charitable contributions.

Here is what changed. Beginning in 2026, itemizers will face a new 0.5% AGI floor on charitable deductions. That means only the portion of your giving that exceeds 0.5% of your AGI is deductible. For a donor earning $1 million, that means the first $5,000 of giving produces no deduction at all.

There is also a cap on the value of deductions for high earners. The OBBBA reduces the marginal value of charitable deductions for top-bracket taxpayers. Under prior law, donors in the highest bracket received a deduction that offset tax at approximately 37%. Beginning in 2026, the value of that same deduction will fall to roughly 35%, modestly increasing the net after-tax cost of each dollar given.

There is some good news for non-itemizers. For non-itemizers, the OBBBA creates a new above-the-line charitable deduction, up to $1,000 for single filers and $2,000 for married filing jointly, for cash gifts to public charities. However, this deduction does not apply to contributions to DAFs or supporting organizations, which is important for planning purposes.

These changes affect how you use both DAFs and charitable trusts. With a CRT, the deduction is calculated based on the present value of the charitable remainder. With a DAF, your deduction is tied to the contribution year and subject to the new AGI floor and cap rules. If you have an international component to your estate, these rules layer on top of additional considerations. Slowik Estate Planning also handles international estate planning for clients with assets or beneficiaries abroad.

Which Option Is Right for Atlanta Residents?

Atlanta is home to a large and growing community of philanthropic individuals, business owners, and families who want to give strategically. Whether you are selling a business, managing a large investment portfolio, or simply want to leave a lasting legacy, both DAFs and charitable trusts can play a role in your plan. The question is which one fits your situation right now.

If you want simplicity, a DAF is hard to beat. You can fund it with cash, stocks, or other assets, take the deduction immediately, and decide on recipients over time. A DAF allows you to contribute a large sum before December 31 to secure the tax benefits, and then spread out your grants over time. This is especially useful if you have a high-income year and want to offset it with a large charitable deduction.

If you want income, a CRT makes sense. Say you own a piece of appreciated property or a large stock position with a low cost basis. Selling it directly would trigger a large capital gains tax bill. Transferring it to a CRT first allows the trust to sell the asset without immediately recognizing the gain. CRTs can work best for those with low-basis assets who need an income stream from that asset and have a desire to donate what is left over to charity.

If your primary goal is transferring wealth to your children or grandchildren while also supporting charity, a charitable lead trust may be the right fit. Charitable lead trusts may reduce estate and gift taxes, depending on how they are structured. This can be a powerful tool for high-net-worth Atlanta families who want to minimize estate taxes while keeping assets in the family.

Georgia law under O.C.G.A. Title 53, Chapter 12, Article 9 provides the legal framework for charitable trusts in the state. These trusts must be properly drafted to comply with both Georgia state requirements and federal IRS rules. A poorly drafted trust can lose its tax-exempt status or fail to achieve your goals. That is why working with an experienced estate tax planning team in Atlanta is so important. Slowik Estate Planning is located in Atlanta, Georgia and works with clients across the state on both simple and complex charitable giving strategies. Contact us today to schedule a consultation and start building a plan that works for you.

FAQs About Donor Advised Funds vs Charitable Trusts in Atlanta, Georgia

Can I use both a donor advised fund and a charitable trust in my estate plan?

Yes, many people use both. A DAF works well for flexible, ongoing giving. A charitable trust works better when you want income, estate tax reduction, or a structured wealth transfer to heirs. Your estate plan can include both tools working together. Slowik Estate Planning can help you design a strategy that uses each one where it makes the most sense for your specific goals and financial situation.

What assets can I contribute to a donor advised fund or a charitable trust?

Both tools accept a wide range of assets. Cash is the most common contribution. Appreciated stocks, mutual funds, and real estate are also popular choices because they allow you to avoid capital gains tax on the appreciation. With a charitable trust, the trust takes ownership of the asset and can sell it without triggering immediate capital gains. With a DAF, you contribute the asset to the sponsoring organization, which then sells it and holds the proceeds for future grants.

Is a donor advised fund or charitable trust better for reducing estate taxes?

Charitable trusts, especially charitable lead trusts, are generally more effective at reducing estate and gift taxes. Assets transferred to a charitable trust are removed from your taxable estate. A DAF does not provide the same estate tax benefit because the assets in a DAF are considered a completed gift to the sponsoring organization, not a transfer that reduces your estate in the same structured way. If estate tax reduction is a primary goal, a charitable trust is usually the stronger option.

How does Georgia law affect charitable trusts?

Georgia charitable trusts are governed by the Revised Georgia Trust Code, found in O.C.G.A. Title 53, Chapter 12. Article 9 specifically covers charitable trusts, and Article 10 addresses provisions related to certain private foundations and trusts. Georgia law requires that charitable trusts be properly structured and administered. These state rules work alongside federal IRS requirements. Failing to comply with either set of rules can result in loss of tax benefits or legal complications. Working with an Atlanta estate planning attorney who understands both layers of law is essential.

Do the new 2026 tax rules under the One Big Beautiful Bill Act affect charitable trusts the same way they affect donor advised funds?

Not exactly. The new 0.5% AGI floor and the 35% deduction cap for top earners apply to itemized charitable deductions generally. For a CRT, the deduction is calculated based on the present value of the charitable remainder interest, which is a specific actuarial calculation. For a DAF contribution, the deduction is the amount you contribute in that tax year, subject to the new floor and cap. The new above-the-line deduction for non-itemizers does not apply to DAF contributions at all. Because these rules are nuanced, working with a qualified estate planning attorney in Atlanta before making any large charitable gifts in 2026 is strongly recommended.

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