Five Advantages of Donor Advised Funds
While Donor Advised Funds continue to grow in popularity across the country, so does their reputation for being a highly effective giving vehicle. But what exactly is a Donor Advised Fund? And how do you know if it is the right approach for your giving strategy?
In a nutshell, a Donor Advised Fund (DAF) is a charitable giving vehicle established at an organization recognized by the Canada Revenue Agency (CRA) as a charity. It enables donors to make a charitable contribution without specifying the charities that will ultimately benefit from their gift right away and the funds can grow tax-free. The donor receives an immediate donation receipt and can recommend grants from the fund to their preferred organizations and causes over time.
You may already be familiar with the concept of a DAF, so let’s take a closer look at the benefits that they provide. Here are five benefits of DAFs and how they aid financial and philanthropic planning now and into the future.
1. A more efficient way to give
Donors who can make a significant charitable gift might consider starting a charitable foundation. However, this route can be expensive and time consuming when you factor in staffing, gift administration, establishing an Advisory Board and other requirements.
On the other hand, a DAF offers the same benefits as a private charitable foundation without the operating and overhead costs. This means more of the gift capital can go directly toward doing charitable work without having to divert funds to cover operating costs or deal with the administrative headaches. In many cases, a DAF can be established with just $10,000.
2. Flexible giving options
When a donor is in the fortunate position to make a significant gift, there are several upfront considerations to work through. One of the primary concerns is whether the charities they wish to give to can accept non-cash assets.
A DAF simplifies this concern with flexible giving options that allow a donor to give a range of non-cash assets. These may include cash-equivalents, publicly traded securities, stock, shares, gifts-in-kind among others. It is a good idea to consult a professional advisor to understand the best way to make a gift of non-cash assets to eligible cases now and over time.
3. Donor designated beneficiaries
One of the most appealing attributes of a DAF for many donors is the ability to choose which causes will receive their support and when that support will be granted. Once the donor has decided on a recipient, the foundation managing the DAF, such as Gift Funds Canada, will confirm the recipient is qualified to receive the grant and ensure the funds are directed to the specified purpose. This gives the donor the freedom to support the causes that are closest to them now and make adjustment to the causes they may support over time.
4. Tax-free growth now and for future
The funds in a DAF have the potential to grow tax-free, making the amount of money available for granting to a donor’s preferred charity even greater. These two factors —tax-free contributions and growth potential— are making DAFs an appealing solution for current and future financial and philanthropic planning.
Another appealing aspect is that investment options for a DAF vary from pooled to highly customized strategies depending on the features of the DAF program chosen. In some cases, a donor may be able to request their preferred Investment Professional to manage the funds gifted. Donors can feel confident about where their money is going while providing planning certainty and philanthropic flexibility.
5. Support more causes with a single gift
Most donors are looking to make the greatest positive impact with their gift and sometimes this means supporting more than one cause. With a DAF, supporting several charitable causes with a single gift is not only possible, it’s also quite simple. Because the funds in a DAF are managed by a qualified organization, the donor simply makes a single contribution to the DAF and the organization distributes the grants in accordance with the donor’s wishes. The donor may have the option of topping up their gift amount whenever the time is right, make recommendations on future granting and will receive a single tax receipt for their gift annually.
When a donor chooses to give to a worthy cause, it is important that the process ensures that their gift is invested and granted responsibly in accordance with their wishes. A Donor Advised Fund offers a simple, efficient and cost-effective way of managing these charitable gifts.
For further information about Donor Advised Fund, please visit giftfunds.com