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Philanthropy can be a way to give back to society and an important part of your long-term financial strategy. However, not all charitable giving operates in the same way.

Two popular approaches offer distinct advantages and limitations: donor-advised funds and direct giving. Which method may be right for you depends on your financial goals, tax strategy and desired level of control over your contributions.

Donor-advised funds (DAFs) are charitable investment accounts managed by organizations, such as community foundations or financial institutions. When you contribute assets to the fund, you receive an immediate tax deduction and retain advisory privileges to recommend how and when grants are made to eligible nonprofits. Although you give up legal control of the assets, you can guide their distribution over time.

In contrast, direct giving involves making a donation straight to a charitable organization. When you donate funds directly, there’s no intermediary, and the nonprofit receives and potentially uses the funds right away. It can be a good option if you know what organizations you want to support and would prefer to see an immediate impact.

For affluent individuals, choosing between a DAF and direct giving has implications not only for charitable impact but also for broader wealth and legacy planning.

The tax and financial planning benefits of DAFs and direct giving can be significant. With DAFs, you generally receive an immediate income tax deduction for the full amount of the donation, even though the grants to charities may be spread out over years. Contributions of appreciated assets like stocks or real estate can be particularly tax-efficient, since you avoid capital gains taxes and receive a deduction based on fair market value.

Direct giving also provides tax deductions, but the benefit is tied to the timing and value of the donation made to a qualified nonprofit. In contrast to donating through a DAF, direct giving doesn’t separate the tax event from the charitable distribution. If you’re anticipating a high-income year, a DAF can serve as a tool to front-load charitable deductions while allowing more time to make giving decisions.

From a long-term planning perspective, DAFs can help manage charitable goals across multiple years or generations, especially when included in estate plans. Direct giving, while more immediate, may be harder to coordinate with ongoing financial strategies unless it is carefully planned.

Another key difference between DAFs and direct giving is the level of control and flexibility each method offers. DAFs give you the ability to recommend grants over time, change recipient organizations and remain anonymous if desired. They also allow your family to engage in collaborative philanthropy, offering a platform to teach younger generations about giving.

On the other hand, direct giving offers full control over the recipient and timing. But once the gift is made, you may not have any further influence over its use. For this reason, direct giving requires confidence in the organization’s capacity and mission.

DAFs provide long-term flexibility and strategic advantages, while direct giving offers immediacy and transparency. Both are valuable tools for charitable giving, and the right choice at a given time depends on your personal values, financial objectives and desired legacy. A financial advisor who understands your full financial picture can help you give in a way that makes the most sense for you and your goals.