Inside Wealth: More tech millionaires are using donor-advised funds for tax savings and giving

An uptick in IPOs and private tech company valuations is fueling a secondary surge in donations of shares to donor-advised funds, known as DAFs, according to a new study. Three-quarters of gifts to DAFgiving360 over the past year were non-cash assets, with shares in both public and private companies, as well as real estate, art, and crypto, being among these holdings.

Julie Sunwoo, president of DAFgiving360, a subsidiary of Charles Schwab, noted that gifts of private-company stock have been particularly robust, especially with the soaring valuations of AI giants like Anthropic and OpenAI, and the increasing duration of companies remaining private. Sunwoo reported that inquiries about private business interests and pre-IPO shares have been higher than ever this year.

DAFs present special benefits for tech workers and holders of private shares. They enable donors to make a charitable gift, claim an immediate tax deduction, and decide later how and when to distribute the shares to a specific charity. For those who own shares of private or public companies that have appreciated, gifting the shares to a DAF avoids capital gains tax on the sale.

Moreover, DAFs are appealing to younger tech professionals, as they can donate now and decide on individual grant recipients later in life. Large DAFs affiliated with Schwab, Fidelity, and Vanguard possess expertise in valuing private shares and other assets, along with extensive market-making operations and relationships with private companies, making it easier for them to sell these private shares.

Sunwoo emphasized that DAFs generally aim to liquidate non-cash assets donated to them within six months and subsequently redeploy these assets to charity. She highlighted that they possess the infrastructure and expertise to facilitate the liquidation of these assets at the appropriate time and through the most suitable solution.

Private companies sometimes restrict or prohibit the donation of their private shares to charities or trusts. However, with public stock, many employees can now donate the shares to a DAF without incurring capital gains tax. The proceeds from the gift can also be utilized to offset capital gains taxes on shares that may be sold.

Sunwoo noted that the recent IPO activity is creating wealth moments for individuals often in their peak earning years, prompting them to seek ways to make a meaningful impact with their newfound financial resources.