Over the last several decades, the use of Donor Advised Funds (DAF) as a charitable vehicle has grown steadily and significantly. The 2022 Donor Advised Fund Annual Report compiled by National Philanthropic Trust reported that the number of individual DAFs accounts rose by 28 percent that year – now reaching nearly 1.3 million DAF accounts.
What is a Donor Advised Fund?
A Donor Advised Fund (DAF) is a philanthropic vehicle that allows donors to make a charitable contribution, receive an immediate tax benefit, and then recommend grants from the fund over time.
Once assets are placed in a DAF, they can no longer be withdrawn for personal use. The assets in a Donor Advised Fund will grow tax-free as you select charitable organizations to support. Rancho Santa Fe Foundation will manage your Donor Advised Fund on your behalf while you decide when and where to donate the assets.
What Types of Assets Can Be Placed in a DAF?
A wide variety of assets can be put into a Donor Advised Fund, including:
- Real estate
- Publicly traded, restricted and/or control securities
- Exchange-traded funds and mutual funds
- Closely held business interests, such as a C-corp or S-Corp
- Private equity fund and hedge fund interests
- Fine art
- Life insurance policies
- Distributions from a retirement account
- And more
Donor Advised Funds: By the Numbers
Being aware of trends and changes in approaches to giving allows philanthropists to deploy strategic practices and do more good. Here’s a look at how DAFs are funded and being used to further philanthropy, according research conducted by the DAF Research Collaborative:
- 61% of DAFs have less than $50K
- 11% of DAFs have more than $1M
- 71% of DAFs made at least one grant last year
- 86% of DAFs made at least one grant over the last 4 year period
- 41% of grants from DAFs are made in the last three months of the year
Trends in Donor Advised Funds
We know a lot more today about the way philanthropists are using DAFs than we ever have before. In the Journal of Nonprofit Management and Leadership, researchers differentiate between three types of Donor Advised Fund holders – tubs, tanks and towers.
Tub donors move money in and out of their DAF on an annual basis. Tank donors contribute large lump sums and award grants in the relatively near future. Tower donors take a calculated approach with the DAF to sustain their philanthropic activity over a much longer period of time.
Each donor has their own reasons for managing their DAFs the way they do in order to create the impact they want to see in the world.
Why Philanthropists Use Donor Advised Funds
Setting up a DAF allows philanthropists to maximize their ability to give to nonprofit organizations and causes they care about. Setting up a fund is easier than creating a private foundation and it can be an important way to teach family members about charitable giving. DAFs also allow donors to remain anonymous, if they so choose.
Rancho Santa Fe Foundation is a 501c3 (Tax ID #95-3709639). This means contributing to a DAF held with the Foundation produces an immediate tax benefit while giving you the time and support you need to thoroughly vet nonprofit organizations doing work that’s aligned with your personal and family values.
The tax deduction is realized when you put assets into the DAF account, regardless of when you donate the assets.
In addition to the deduction received when adding assets to the DAF, those assets also have the potential to grow tax-free. With tax-free growth, assets in the fund can accumulate at an accelerated rate, creating a larger pool of available funds for the donor to grant to charitable organizations.
If tax-free growth is important to you, thoroughly vet the foundation you choose to work with to ensure they have a track record of positive investment performance.
DAFs create a centralized giving process. Rather than managing multiple contributions over a variety of organizations and charities, donors will have a single tax receipt to simplify record-keeping, management, and tracking donations.
With a DAF, donors can avoid the administrative headaches that can accompany charitable giving. Rancho Santa Fe Foundation will handle due diligence on charitable organizations, distributing funds based on the DAF holder’s recommendation, and ensuring all giving practices are compliant with ever-changing laws and regulations.
Having the administrative side of things taken care of allows philanthropists to focus all their energy on charitable impact.
Not everyone wants a spotlight on their charitable giving patterns. There are many reasons for this. With a DAF, philanthropists can choose to withhold their identity when donating and allow the sponsoring organization of your account to take care of the rest.
A Donor Advised Fund allows for an entire family to be involved in the giving process. With a DAF, an advisory board consisting of family members can be established to promote collaboration and discussion about what charitable organizations the fund should support.
A DAF can also establish a family legacy through its organization and giving practices. For donors who want to ensure their philanthropic efforts stay within the family, a family advisory board can offer a smooth transition between generations.
Selling a business, receiving a large inheritance, or earning a hefty bonus often triggers significant tax liability. By contributing to a DAF during a liquidity event, philanthropists can receive the immediate tax deduction, which may help offset the increased tax liability associated with the liquidity event and give them more time to determine how they want to award philanthropic gifts.
Open a Donor Advised Fund with RSF Foundation
At Rancho Santa Fe Foundation, donors have granted more than $139 million from Donor Advised Funds. We have deep knowledge and experience in managing donor-advised funds for philanthropists in North County and take great pride in having provided exceptional investment stewardship of charitable funds for more than 40 years.
If you are considering opening a Donor Advised Fund, we’re here to support you. Contact our office today to speak with Amy Myers, Vice President of Philanthropy and Impact.