Why Financial Advisors are Looking to Donor Advised Funds
Every year, millions of Canadians support the charities and causes they believe in. In many cases, donors work with their trusted advisor to develop an overarching financial plan that may well include a planned giving strategy that suits their personal and philanthropic goals.
Among these charitable strategies are Donor Advised Funds (DAF), which are growing in popularity among donors and their advisors as a preferred gift planning methods. To understand why DAFs are on the rise, and if it is the right giving tool for a particular situation, it can be helpful to consider things from the donor’s perspective.
Challenge
Every client’s situation and goals are unique. However, those who are entering a significant life event, like the sale of a business or other asset, and wish to make a gift to a preferred charity, may face similar challenges.
Financial advisors are aware that starting a private foundation is one option but are mindful that not all donors want to take on the expense and commitment involved in starting their own foundations. Many of the same donors would like to maintain the flexibility to ensure their gift supports the area they are most interested in funding. And, there’s the matter of the gift itself. Not all charities can accept all gift types, which makes donating assets of complex gifts-in-kind such as real estate or some appreciated securities more challenging.
Solution
A Donor Advised Fund is an option that can address a donor’s concerns about simplifying the giving process while maintaining flexibility over grant distribution and a range of gifted assets.
A credible public foundation like Gift Funds Canada can help set up a DAF, while navigating the complexities of any gift agreement. Unlike starting your own private foundation, Gift Funds Canada acts as the administrator of this 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 burdens so they can focus on the gift’s impact.
But administration is not the only benefit to working with Gift Funds Canada. Setting up a DAF may provide greater flexibility compared to a direct gift to a charity that will ultimately benefit from the donor’s support. An individual, family, organization or business can establish a fund, receive an immediate donation receipt for their gift and then begin recommending grants. The fund also ensures the donor is supporting the area of need that is aligned with their philanthropic goals. If the project or program they are funding changes, there is flexibility to redirect the grants accordingly.
Result
Financial advisors may consider a DAF for their clients because it enables a donor to establish a method for supporting the cause that aligns with their charitable goals. Typically, there are no costs associated with setting up a DAF and a fund can be established with as little as $25,000.
Advisors can help their clients take advantage of potential tax benefits and generate money over time, while maintaining flexibility over the allocation of funds without the administrative burden of starting a private foundation. In the future, if family or others choose to make additional contributions to the fund, they may do so and would receive donation receipts, which may qualify for income tax credits.
From the donor’s perspective, a DAF can be a great charitable giving strategy depending on their motivations, and their philanthropic and investment planning goals. From the advisor’s perspective, partnering with Gift Funds Canada to establish a DAF can expand their professional expertise and provide greater support and resources to have a positive impact on the donor’s preferred charity.