Money Talk with Malik | Financial Planning for Builders

Key Takeaways

A donor advised fund (DAF) lets you take a tax deduction now, then give to charities over time
Contributing appreciated startup stock to a DAF before a liquidity event avoids capital gains entirely on that contribution
You can deduct up to 30 percent of AGI for appreciated assets contributed to a DAF in a single year, with a 5-year carryforward for excess
Fidelity Charitable, Schwab Charitable, and Vanguard Charitable are the three largest DAF sponsors, with no minimum grant size at Fidelity
DAFs make sense even if you don't know exactly which charities you want to support yet

Most founders I work with who care about giving find out about donor advised funds about six months after they should have. The exit happens, taxes get paid, and then someone mentions that there was a way to give more and pay less.

I want to make sure you know about this tool before you need it.

What Is a Donor Advised Fund?

A donor advised fund is a charitable account you set up through a sponsoring organization like Fidelity Charitable, Schwab Charitable, or Vanguard Charitable. You contribute assets to it, take a tax deduction in the year you contribute, and then recommend grants to actual charities whenever you want. The money can sit in the DAF for years while it grows, and you grant it out over time.

The "donor advised" part just means you're advising the sponsor on where to send the money. The sponsor technically controls the account, but in practice, your recommendations are followed as long as you're directing funds to legitimate IRS-recognized charities.

Why Does This Matter for Founders?

Here's where it gets interesting. You can contribute appreciated assets, including startup equity, to a donor advised fund. If you do it before the exit, here's what happens:

You contribute shares that have appreciated significantly. You get a deduction for the fair market value of the shares at the time of contribution. And because a DAF is a charity, the transfer is not a taxable event. The capital gain disappears entirely.

Compare that to selling the shares yourself and then donating cash. If you sell, you pay capital gains tax on the appreciation. Then you donate the after-tax proceeds. You get a deduction for the cash donated. But you already gave a chunk to the IRS.

Contributing the shares directly skips the tax. That's real money.

A Concrete Example

Say you have founder shares with a cost basis of $10,000 that are now worth $500,000. Your company is heading toward an acquisition.

If you sell the shares and donate $100,000 in cash afterward, you pay capital gains tax on the sale first. At a 23.8 percent federal rate (20 percent long-term plus 3.8 percent net investment income tax), that's roughly $117,000 in taxes on the full gain, and the $100,000 donation comes from after-tax proceeds.

If instead you contribute $100,000 worth of shares directly to a DAF before the sale closes, you skip the capital gains on that $100,000 of shares entirely. You still get the full deduction. And the remaining shares get sold in the normal acquisition.

The difference is thousands of dollars that stay in the charitable account and ultimately reach the causes you care about, rather than going to the IRS.

What About Contributing Pre-IPO Shares?

This is where it gets more complicated. You can contribute private company shares to a DAF. The DAF sponsor can then sell them when the company goes public or gets acquired.

But the contribution needs to happen before you have a legally binding agreement to sell. If the acquisition is already signed and you're waiting for closing, the IRS may treat that as a constructive sale, meaning you own the tax even though the shares went to the DAF.

The rule of thumb most tax attorneys use: contribute the shares before a definitive agreement is signed, or at minimum well before closing. Once you've signed a purchase agreement, it's generally too late for the contribution to avoid capital gains.

Timing is everything here. If you're thinking about this, you need to move early.

Deduction Limits to Know

For contributions of appreciated assets to a DAF, the deduction is limited to 30 percent of your adjusted gross income in the year you contribute. If you contribute more than that, you can carry forward the excess for up to five years.

So if you make $800,000 in a year, you can deduct up to $240,000 in appreciated asset contributions. If you contributed $500,000 worth of shares, you'd deduct $240,000 this year and the remaining $260,000 over the next five years.

For cash contributions to a DAF, the limit is 60 percent of AGI. The limits reset each year, and you can contribute to a DAF in any year, not just exit years.

You Don't Have to Know Where the Money Goes Yet

One thing founders appreciate about DAFs is the flexibility. You don't have to decide which charities get the money at the time of contribution. You can park the money in the DAF, invest it so it grows, and then give grants to specific organizations whenever you're ready.

Some people take a year or two after an exit to figure out where they want to focus their giving. The DAF lets you take the deduction now and make those decisions later. In the meantime, the account grows tax-free.

How to Open One

The three largest DAF sponsors are Fidelity Charitable, Schwab Charitable, and Vanguard Charitable. All three accept stock contributions. Fidelity Charitable has no minimum grant size and no account minimum. Schwab has a $5,000 minimum initial contribution. Vanguard has a $25,000 minimum.

There are also specialized DAF providers like the Silicon Valley Community Foundation or National Philanthropic Trust that work frequently with founder equity and complex assets.

Opening one takes about 30 minutes online. The harder part is coordinating the equity contribution before your exit timeline closes, which requires your financial advisor, tax advisor, and often your company's legal team to align quickly.

When Should You Be Thinking About This?

If you're charitably inclined at all, the time to set up a DAF and think through the strategy is 6 to 12 months before any expected liquidity event. Not after.

The tax benefit of contributing appreciated shares exists only before the sale. Once the money is in your bank account, the opportunity is gone. You can still give generously from cash, but the capital gains are already locked in.

You got to be smart about the timing here. This is one of those situations where waiting until everything is clear means waiting too long.

Summary

Donor advised funds are one of the most efficient ways to give if you're a founder sitting on appreciated equity. You avoid capital gains on the contributed shares, take an immediate deduction, and give to charities on your own timeline.

The window to make it work is before the exit closes. If giving is part of your plan, get the account open early and talk to your advisor about the right amount to contribute before a deal is signed.

The boring paperwork now creates real impact later.

Malik Amine is a financial advisor working with tech founders and physicians. This is general education, not personalized financial or tax advice. Consult your tax advisor before making any charitable contributions of appreciated assets.