How Donor Advised Funds Can Help During Crisis
During these unprecedented times of social distancing, closures, and uncertainty, almost every aspect of our lives is being impacted. What’s more, many of us hear and read about front-line workers and charitable organizations continuing to aid the most vulnerable in our communities. These inspiring actions make us want to help in some way, but like many Canadians stuck inside, it’s difficult to know where to start.
Philanthropic support is a great option to make a positive contribution at a time when the need is so great—and it’s not all up to donors. Investment advisors and financial planners can also play a leading role in helping their clients understand the options and provide information that can result in vital support during this historic time.
Here are just a few ways a Donor Advised Fund (DAF) can be used to help during crisis and what donors and their advisors should include in their philanthropic planning.
Donor Advised Funds
There are many advantages that a DAF provides. But first, it’s important to understand what a DAF is and how it can benefit a giving strategy.
A Donor Advised Fund 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 to their preferred cause while maintaining flexibility over grant distribution and a range of gifted assets, providing donor anonymity, tax advantages, and the option to give locally as well as nationally.
A credible public foundation like Gift Funds Canada can help set up a DAF while navigating the complexities of any gift agreement. Unlike starting a private foundation, which will take time and resources, Gift Funds Canada acts as the administrator of the fund and all the funds it manages—handling the set-up, accounting, annual government filings, and the investment management of the assets. This releases the donor of the administrative burden so they can focus on their gift’s impact, whether it’s supporting medial professionals on the frontlines or research for a cure.
Charitable Gift Annuities
A Charitable Gift Annuity is a giving vehicle that, when combined with a Gift Funds Canada Donor Advised Fund, enables a donor to make a charitable gift during their lifetime without jeopardizing their access to supplemental income, both now and in the future. This is particularly appealing for individuals who want to make a gift to support an immediate need but are still mindful of their future cash requirements.
Charitable Gift Annuities can be considered part investment and part charitable gift because they provide an income stream for the donor’s lifetime, result in an immediate or partial tax deduction based on donor life expectancy and anticipated income stream while reducing or eliminating capital gains tax liability for gifts of appreciated securities and personal property—not to mention they support an organization or cause the donor cares about.
Charitable bequests
Charitable bequests offer flexibility for donors. Since a bequest is a future intention, the donor retains the ability to change or add beneficiaries and modify gifted amounts and types of gifts at any point during their life. These kinds of changes will likely require changes to the donor’s Will and may require involving a lawyer. This can be costly and time-consuming, which can be prohibitive when planning to support an immediate need.
Another option is making a single gift under their Will to a charitable organization like Gift Funds Canada in the form of a Donor Advised Fund. In this case, the donor leaves grant recommendations for specific charitable recipients and instructions for ongoing management of the Fund’s assets. Now a donor can change any aspect of their gifting strategy by simply notifying Gift Funds Canada, saving the time and cost associated with changing a Will.
There are different types of bequests, but regardless of which works best for a particular donor and situation, donors gain the time to consider their own cash flow needs while retraining the flexibility to make modifications to their Will if circumstances change.
Charitable endowment
In times of crisis, many donors jump at the opportunity to support immediate needs however, it is also important to think longer-term, to prevent future pandemics and support preparedness. In this case, a Donor Advised Fund for endowment purposes offers many benefits for the donor and their preferred charitable cause.
An Endowment Fund approach to gifting can support areas where the need for dependable, ongoing funding is essential such as in hospitals, medical relief clinics, and research centres. This giving structure is an option that can also support other areas of need such as new building projects, purchasing equipment like ventilators, which can have an immediate and long-term positive impact.
Donors who choose to give to a DAF that has been established for endowment purposes may give cash, publicly traded securities or a gift-in-kind that has an immediately realizable cash value. This is ideal in today’s climate as well as for donors who might be approaching a significant tax event.
Indeed, there are many giving options for donors to help in times of crisis. It’s important to note, all the above gift types using a DAF result in an immediate tax receipt to the donor and a professional advisor at Gift Funds Canada can assist donors and investment advisors with expertise about any gift type, professional advice, and support every step of the way. Afterall, we’ll all in this together.