Illiquid DAFs

Illiquid Assets and Donor-Advised Funds: An Educational Overview

Legal Disclaimer
This material is for educational purposes only. It does not constitute legal, tax, or investment advice. No attorney-client relationship is formed. Before taking any action, consult a qualified tax attorney, CPA, and financial advisor.

Illiquid Assets include holdings that cannot be easily converted into cash—such as private company equity (LLCs, S-corps, LP interests), real estate (especially fractional or encumbered), restricted or thinly traded securities, cryptocurrency and digital assets, collectibles, intellectual property, and life insurance. While these gifts may provide tax and planning benefits, they involve significant complexity. DAF sponsors differ widely in their acceptance policies, processing timelines, and legal requirements, so early engagement is essential.

Donor Motivations for contributing non-cash assets often center on avoiding capital gains, obtaining charitable deductions (sometimes based on fair market value), and enabling long-term grantmaking from a single transaction. These gifts can also integrate with estate planning, succession strategies, or broader liquidity events. However, every potential benefit hinges on rigorous compliance with IRS rules and proper structuring.

Timing Matters. Illiquid gifts can take three to nine months to complete, and many DAFs impose an October deadline for complex assets to qualify for year-end treatment. Donors who wait too long risk missing the window altogether. Begin the planning process well in advance of your desired contribution date.

Valuation Rules vary by asset type. A qualified appraisal, 409A report, or other defensible valuation may be required. If the valuation is inaccurate, noncompliant, or omitted, the IRS may deny the deduction or impose penalties. Deductibility also depends on asset type: fair market value is allowed for some gifts (e.g., publicly traded stock), while others (e.g., S-corp shares, short-term holdings, donor-controlled assets) are limited to cost basis.

Transfer Restrictions often block or delay contributions. Review all operating agreements, shareholder provisions, rights of first refusal (ROFRs), and debt encumbrances. Even if the donor has the intent and the DAF is willing, transfer limitations can prevent or invalidate the gift. And importantly, DAFs are not long-term holders of illiquid positions—if there's no realistic path to sale, the gift may be declined outright.

Charitable Compliance is non-negotiable. Donors must not receive any personal benefit from the gift. That includes avoiding self-dealing, disguised sales, or donor-directed grants that violate 501(c)(3) rules. Both substance and optics matter: intent must be fully charitable, and execution must align with IRS expectations.

National DAF Sponsors that currently accept complex or illiquid assets include:

Fidelity Charitable — $48.3B — fidelitycharitable.org
National Philanthropic Trust — $35.1B — nptrust.org — (888) 878-7900
Schwab Charitable — $26.4B — schwabcharitable.org
Silicon Valley Community Foundation — $13.5B — siliconvalleycf.org
Vanguard Charitable — $17B — vanguardcharitable.org
Renaissance Charitable — $4B — renaissancecharitable.org — (866) 803-0389

(Asset figures are approximate and based on publicly available data; this list is for reference only and not an endorsement.)

Execution Tips:

Begin planning 4–6 months ahead of the intended gift
Engage legal and tax advisors at the outset
Prepare documentation early: appraisals, governing documents, financials
Confirm acceptance policies and processes with the DAF sponsor
Consider alternative strategies such as partial sale plus gift or QSB stacking when appropriate

Final Legal Reminder: This material is provided solely for general education. It does not constitute legal, tax, or financial advice. No attorney-client or fiduciary relationship is created. Always consult qualified professionals regarding your specific circumstances.