Using a Donor-Advised Fund to Diversify a Concentrated Stock Position

Your client’s position in a single stock has grown to a majority of their portfolio. You have a plan to sell it over five years and absorb the gains in tranches. Separately, the client gives hundreds of thousands a year to charity, in cash.

Those two plans usually run on different tracks, but they work better as one.

Using a donor-advised fund (DAF) to diversify a concentrated stock position allows the DAF to act as a second exit. Each year, the client contributes the lowest-basis shares to the DAF, so the largest embedded gains leave the position without being sold. The rest of the sell-down continues on its own schedule.

How does a DAF fit into a concentrated stock diversification strategy?

A typical sell-down strategy treats every share the same. The tax cost does not. Shares acquired years ago carry far more gain per dollar than shares acquired recently, and selling those long-held shares is the most expensive part of any diversification plan.

Routing those shares to charity changes the order of operations. The sale side uses the higher-basis lots, where the gain is smallest. The giving side uses the lowest-basis lots, where the gain is largest. The client gives the same amount, and the position shrinks from both ends.

The actual process of contributing concentrated stock to a donor-advised fund requires the advisor to confirm several details early to ensure efficiency.

Which shares should go to the DAF first?

Start with the shares that would cost the most to sell and confirm they qualify for a fair market value deduction:

• Lowest-basis shares held more than one year. Shares held one year or less are generally deductible only at cost basis, not fair market value, under IRS rules for gifts of property.
• Specific lots identified at transfer. Shares bought or granted at different times sit in separate lots, each with its own cost basis. Tell the custodian which lots to transfer since the default is often first-in, first-out, which may not move the lowest-basis shares.
• Higher-basis shares stay on the sale side. That is where selling costs the client the least.

Should the gift be made in one year or staged over several?

For a concentrated position, staging usually wins. The deduction for appreciated stock contributed to a DAF is generally limited to 30% of adjusted gross income, with any excess carried forward for up to five years, per IRS Publication 526. A single large gift can outrun the client’s ability to use it.

Staging also lets contributions follow income. A heavier gift in a year with a bonus, an option exercise, or a large block sale puts the deduction where it is worth the most. Our 2026 OBBBA guide for complex-asset and pre-liquidity clients covers how this year’s deduction rules affect that math.

What changes when the shares are restricted or control stock?

Executives, directors, and large holders often cannot move their shares freely. Their holdings may be subject to SEC Rule 144, trading windows, or lockups. Using a DAF to diversify a concentrated stock position is often still possible, but it involves the issuer’s counsel, the transfer agent, and a sponsor able to sell within the applicable restrictions.

That adds time. For a year-end contribution, restricted and control securities should start by November 1.

Who manages the assets after the contribution?

Contributing shares to a DAF does not have to mean the charitable assets leave your management. Through an advisor-managed DAF, you can continue managing what the client has set aside for charity once the shares are converted, with a custom strategy that suits the overall financial plan. The diversification plan and the charitable plan stay with one advisor.

Put the charitable piece into the plan

If you are working through a concentrated position with a client who gives, bring us the situation: the position, the lots, any restrictions, and the sell-down timeline. We will tell you which shares make sense to contribute, when to contribute them, and what it will take.

Start a complex-gift conversation with our team before the next tranche is sold.

This material is provided for informational purposes for financial advisors. It is not legal or tax advice. Clients should consult their own tax and legal counsel regarding their specific circumstances.