Do you make sizable gifts to charitable causes? If you’re fortunate enough to afford it, you can realize personal rewards from your generosity and claim a deduction on your tax return. But once you turn over the money or assets, you generally have no further say on how they’re used.

You can exercise greater control over your charitable endeavors using a donor-advised fund (DAF). According to the National Philanthropic Trust (NPT), a nationwide public charity, this has become the fastest-growing charitable vehicle in the country in recent years, with no signs of the trend abating.

Setting up a DAF

As the name implies, your recommendations are integral to a DAF. First, you contribute to a fund typically managed by an independent sponsoring organization or an arm of a reputable financial institution. The minimum contribution generally is $5,000. In exchange for handling the management of the fund, the financial institution or organization usually charges an administrative fee based on a percentage of the deposit.

Next, you make recommendations to the fund about how to dole out the money to your favorite charities. Though technically you no longer have control of the money that has been contributed, the fund administrator will generally follow your advice. While you’re deciding which charities to support, your contribution is invested and grows tax-free. Then, your charitable choices are vetted by the organization to ensure that the recipients are qualified charitable organizations. Finally, the administrator cuts the checks and the funds are distributed to the charities.

Although contributions to a DAF are often made in cash, publicly traded securities are also readily accepted. In fact, other assets, such as real estate and closely held business interests, may also be contributed.

DAF pros and cons

Here are the advantages and disadvantages of using a DAF:

Immediate tax deduction. Your contribution to the DAF is deductible in the tax year in which the initial contribution is made. You don’t have to wait until the fund makes distributions to the designated recipient.

Convenience. It’s easy to establish and contribute to the fund. All the administrative duties and paperwork are handled for you.

Simplicity. You only have to keep track of a single contribution, as opposed to multiple donations to several charities.

No capital gains tax. If you contribute appreciated property such as securities, there’s no capital gains tax on the appreciation in value. It remains untaxed forever.

No estate tax. Contributions to a DAF aren’t subject to estate tax or the probate process.

Tax-free growth. The amounts contributed to the fund are invested and can grow without any tax erosion.

Security. Using a DAF ensures that money becomes available only to legitimate charities.

Anonymity. If you prefer, distributions can be made to charities anonymously. Alternatively, if you don’t mind the limelight, you can name the fund after your family.

Conversely, despite some misconceptions, contributors to DAFs have effectively no control over how the money is spent once it’s disbursed to charities. Donors can’t benefit personally. For instance, you can’t direct that the money be used to buy tickets to a local fundraiser. In addition, detractors have complained about high administrative fees.

Naturally, the basic tax rules relating to charitable contributions continue to apply. For example, monetary contributions generally are deductible in full, but the amount you can claim each year is limited to 50% of your adjusted gross income (AGI). Your deduction for donations of appreciated property may be based on the property’s fair market value if you owned it longer than one year. But the annual deduction limit for such gifts is 30% of AGI. Finally, certain itemized deductions, including those for charitable donations, are reduced for upper-income taxpayers.

Do your homework

If you believe a DAF is the right charitable funding vehicle for you, be sure to shop around. Fund requirements — such as minimum contributions, minimum grant amounts and investment options — vary from fund to fund, as do the fees they charge. So work with your estate planning advisor to find a fund that meets your needs.