Families choose donor-advised funds (DAFs) for a number of good reasons. Here are some of the most important:
DAFs honor the family, both past and future…
Family legacy: Some donors name a DAF for a loved one, living or deceased, and may give to organizations in honor or memory of that person. Others establish funds to express their personal or family values through giving—and pass on those funds to connect their kids to the family, to the community, and to a legacy.
Family unity: Some donors establish DAFs for the purpose of bringing family closer together—e.g., blended families or families where there has been a divorce. A commonly sought outcome of families doing philanthropy together is closeness. The act of meeting, talking about values, interests and passions, grantmaking, site visits, and shared service all lead to families being closer, over time.
Introduce the next generation to philanthropy: Families find that DAFs are an easy and effective way to teach their children or grandchildren about philanthropy and prepare them to manage family wealth in the future. Some donors establish separate funds for each of their kids. Others include family members of all ages, involving them in the decisions about which grants to recommend, and perhaps encouraging them to make grants together. This can instill shared values and decision-making skills in the next generation, and has the benefit of bringing family members closer together.
Note: Some DAFs allow donors to advise for only one or two generations before the DAF becomes part of the general endowment of the sponsor organization. Others permit donors to appoint successors, allowing the DAF to exist in perpetuity. Be sure to carefully read the fund agreement of any DAF to be clear on what the sponsor organization allows.
DAFs are easy to establish, and easy to manage…
Lower, more flexible entry point: Depending on the fund and sponsor organization, DAFs have a lower entry point than starting a private foundation. Some sponsors have no minimum required to open a fund. For example, a donor might open a fund for a $5,000 or $25,000 minimum—making them a more accessible option for donors of varying wealth levels. Moreover, DAFs accept all kinds of assets—cash, stock, mutual funds, real estate, sometimes even more complex assets like crypto-currency or rare antiques—making them a more flexible vehicle for giving.
Lower costs and easy administration: Compared to the expenses and administrative upkeep of private foundations, DAFs cost less in terms of money and management. That said, sponsor organizations charge a wide range of fees. Typically, fund holders can expect to pay anywhere from 0.6 – 3 percent in administrative and investment fees. Yet for those fees, sponsor organizations typically handle all the administrative headaches—including conducting due diligence and all paperwork associated with making grants. This can be a significant benefit of having a DAF. For example, sponsor organizations might carefully check the IRS database and sites such as candid.org (former Guidestar) to ensure the non-profit is in good standing. Some are able to perform additional due diligence for organizations in their service area, especially if those non-profits have applied for funding, or if sponsor organization staff work in the community and have a deep knowledge of local non-profits. With this expertise and knowledge at hand, donors have more time to focus on their philanthropic goals. On the other hand, some experienced observers also note that many DAF sponsors will do little more than ensuring the charitable status of a recipient – so it’s important to get clarity on what level of administrative service is offered.
High level of convenience: Some donors say you can’t beat the convenience of a DAF. Typically, donors can simply go online to their DAF portal, click or enter an organization and an amount they wish to grant, and—pending approval from the sponsor organization—it’s done. Each year, the sponsor sends the donor a report listing all of the fund’s grants. This enables donors to support multiple organizations over time, without having to track each separate donation themselves. Many sponsors go beyond this and provide reports of grants made in specific areas of interest, or schedule individual meetings to sit with donors and analyze their giving and discuss whether the grantmaking is in line with their passions and/or philanthropic plan.
Give when you want: DAFs are also highly flexible on timing. Rather than rushing at the end of the tax year to make donations or meet payout, DAF-holders can patiently spread out their giving, making impact over time. As one donor says, “I don’t have to make rash decisions with my DAF. The funds are in there, and they aren’t’t going anywhere—so I have the time to be thoughtful about where I want to give and when.” Additionally, donors can support multiple organizations over time with one donation.
Also in this Guide: See a collection of real-life success stories highlighting some of the many reasons the DAF structure is so popular
DAFs have many tax benefits, both in the present and future…
Take an immediate deduction: Donors receive an immediate tax-write off and maximum tax benefit for the amount they contribute to a DAF. Each year, donors can contribute to the fund, and have the ability to grow tax-free assets over time.
Avoid capital gains and estate taxes: When donating appreciated assets (such as securities), donors incur no capital gains tax on gifts—tax they would have had to pay if they sold the assets. As one donor says, “We can pay taxes on our gains, or we can donate the whole amount of the gain to our DAF at the top dollar on the sale, and we don’t get taxed on that money.” Additionally, donors are not subject to estate taxes.
DAFs allow donors to achieve a variety of specific philanthropic goals…
Maintain privacy: With DAFs, donors have the option to make anonymous grants to protect their personal or family privacy. Some may not be interested in “getting credit” for their giving, and view anonymous giving as the highest form of altruism. Others may wish to give anonymously to causes or organizations that others might view as controversial. Whatever the reason, DAFs make it easy to give anonymously if that’s what a donor wants. The sponsor distributes grants to non-profits, and isn’t required to disclose donors and the source of the funds.
Give outside of foundation’s mission or place: Some family foundation members may wish to give beyond the scope of the foundation’s mission, to an issue outside the funding areas, or to another geographic region. For example, if a family foundation is based in and primarily makes grants to charities in Kalamazoo, but has individual board members living in Atlanta or San Francisco—they may wish to establish a separate DAF in a community foundation where the other family members live to gain access to the local expertise and networks offered by the community foundation and to facilitate grants to organizations in those communities. Others may simply want to establish a DAF at a national organization and make grants from it to charities outside the foundation’s core mission so the foundation is not solicited for additional grants.
Facilitate international giving: Families can often use donor-advised funds to facilitate international grantmaking. While sponsoring organizations’ abilities to facilitate such grantmaking and conduct equivalency determination varies widely, all sponsors are able to process grants to U.S. non-profits with IRS 501c3 designation doing international work, using the same vetting process as they would for local organizations. Many sponsors may also use intermediary organizations like Give2 Asia, the King Baudoin Foundation or Non-profits Aid Foundation. Grants through intermediaries require an additional cost to donors, and some sponsors have the capacity to process grants directly to international organizations or to perform the necessary due diligence called expenditure responsibility.
Success Story: DAF Used to Engage Geographically Dispersed Children
Imagine a family in which the donor couple lives in San Diego, their one brother and two sisters reside in other states, and their combined eight children are scattered in regions across the United States. The donor couple and their brother and sisters sit on the board of the family foundation in San Diego and they increasingly want to bring their children to board meetings.
Once-a-year board meetings for a foundation dedicated to national concerns is not particularly satisfying to the donor couple’s brother and sisters, and offers little opportunity to draw the children into philanthropy. One answer can be donor-advised funds for each brother and sister in their own communities. Donor-advised funds can be set up in a few hours, can be funded with endowments or periodic contributions, and don’t require board meetings or more family involvement than is desired. The funds can be located anywhere in the country where family members live, or even where no family members currently live, in which case they can get advice and local expertise from the local sponsor. Sponsor organizations can make grants anywhere family members live, and can send grantmaking reports to any family member, anywhere.
—Source: Gay Young, The New York Community Trust
DAFs provide access to expertise, knowledge, and networks…
Experts on call: Many sponsor organizations, especially community foundations, have deep knowledge of the issues and organizations in the communities they are located. Many sponsor organizations have experts on local needs, issue areas, and strategic opportunities. When donors start a DAF at some sponsor organizations, they join a community of donors—gaining access to staff expertise and support they otherwise wouldn’t have, along with the opportunity to network with others. This can lead to more informed and impactful grant decisions.
Connect with your peers: Some sponsor organizations also offer a variety of donor networking and education events. As one donor says, “If I want to give to a school or local art project, I can call my [sponsor organization] and they will suggest ideas and keep me posted as needs arise. I can also learn from other donor advisors what they are funding, and, if we share interests, we might support the same projects for a bigger impact.”
Success Story: Sharing Values through a Donor-Advised Fund
To mark the occasion of her 100th birthday in 2007, Mrs. Kathryn Davis—author, journalist, scholar, and philanthropist—established a donor-advised fund at The Pew Charitable Trusts, and then added to it through her estate. Her granddaughter, Tory Davis Nosler, with whom she was very close and had much in common, now serves as the donor-adviser to the fund.
“My grandmother’s values are important to me, and Pew’s DAF program allows me to honor them, and engage in long-term strategic philanthropy by choosing grantees that focus on issues for which we shared a passion—peace, education, science innovation, and the environment—while also being nimble enough to help me respond to crises in my community, such as migrant worker hardships caused by wildfires in California,” she says.
Nosler meets with Pew staff on a quarterly basis to review letters of intent, proposals, and evaluations of impact along with strategizing on future grantmaking — all while receiving frequent updates regarding grantees’ work. “Pew’s emphasis on measurable results and return on investment gives me reassurance that my grandmother’s legacy is being honored as she would have wished.”
—Source: Pew Charitable Trusts