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
Illiquid assets are defined as holdings that cannot be easily sold or exchanged for cash. These may include:

Private company equity (LLCs, S-corps, LP interests)
Real estate (including fractional or encumbered interests)
Restricted or thinly traded securities
Cryptocurrency and digital assets
Collectibles, life insurance, or intellectual property

DAF sponsors vary widely in their acceptance of these assets. Review policies, timelines, and legal constraints early.

Why Do Donors Consider Non-Cash Gifts?
When structured properly, these gifts may allow:

Capital gains avoidance on appreciated assets
Charitable deductions based on fair market value (if qualified)
Long-term grantmaking from a single transaction
Coordination with estate, succession, or liquidity planning

However, benefits depend entirely on execution and compliance with IRS rules.

Key Issues to Discuss With Advisors

Timing:
Start early—illiquid asset gifts often take 3–9 months. Many DAFs cut off complex gifts by October.

Valuation:
Determine if a qualified appraisal, 409A, or market-based valuation is required. Inadequate valuation can lead to deduction denial or penalties.

Deductibility Rules:
Some gifts qualify for fair market value deductions (e.g., publicly traded stock); others are limited to cost basis (e.g., gifts of S-corp stock, short-term holdings, or assets with donor control).

Transfer Restrictions:
Review operating agreements, ROFRs, debt encumbrances, or shareholder provisions that could block transfer or invalidate a gift.

Disposition Risk:
Can the DAF liquidate the asset? DAFs are not long-term holders of illiquid positions. If there's no realistic path to sale, the gift may be declined.

Charitable Intent and Compliance:
No personal benefit can accrue to the donor. Avoid self-dealing, disguised sales, or donor-directed distributions that violate 501(c)(3) requirements.

National DAF Sponsors Accepting Non-Cash Gifts
(For reference only – not endorsements)

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
Renaissance Charitable — $4B — renaissancecharitable.org — (866) 803-0389
Vanguard Charitable — $17B — vanguardcharitable.org

Asset figures are approximations based on publicly available sources

Common Mistakes to Avoid

Submitting gifts too close to year-end
Using outdated or non-qualified appraisals
Ignoring transfer restrictions in governing documents
Donating encumbered or legally contested assets
Attempting to direct grants to family-run or affiliated organizations
Assuming FMV deductibility without confirming qualification

Execution Tips

Begin planning 4–6 months before the intended gift date
Consult your legal and tax team at the outset
Prepare documentation in advance (appraisal, entity docs, financials)
Coordinate with DAF sponsor early to confirm acceptance and process
If needed, consider partial sale + gift structures or QSB stacking strategies

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.