What is a donor-advised fund? (DAF)
October Quote: "Investing should be an expression of your best hope for the world."
—David Gardner, co-founder of The Motley Fool.
A Donor-Advised Fund (DAF) is a philanthropic financial account with a sponsoring organization, usually a community foundation or financial institution. In Oregon, examples include the Oregon Community Foundation and Fidelity Charitable.
You fund the account with an irrevocable gift to the sponsor. Since DAF sponsors have non-profit status, donors making gifts into DAFs are eligible for a charitable deduction. Most DAFs accept cash, securities, and other assets.
Over half of PlayWrite’s annual budget comes from individuals, giving directly or through DAF grants.
This gift creates the “fund.” The sponsor will invest your fund into an account under your name, or whatever name you choose. Depending on the organization you open a DAF with, you may work with a dedicated philanthropic advisor backed by an expert investment committee and professional managers to invest your fund based on your preference.
You, as the donor, then recommend which nonprofit organizations you wish your fund to support. (This is the “donor-advised” part of a donor-advised fund.)
Sarah Grace McIlveen, Director of Philanthropy at the Oregon Community Foundation, generously gave us time to discuss the nuances of DAFs. In the following discussion, some aspects of funds and funding are specific to OCF, so consider these to be general guidelines which may vary from sponsor to sponsor. Note also that changes in federal government regulations may affect rules and how they are applied.
There are two basic types of DAFs
An endowed fund. Your original gift (and any additions) becomes part of a pool of endowment funds in perpetuity, and all are invested together in one of two investment options.
One plan is a general mix of investments. The second prioritizes environmental, social, and governance (ESG) factors. Both are focused on careful stewardship of gifts for long-term growth.
Each year the combined OCF endowment investment pool has a pay-out rate that determines how much is available to be given in grants. For 2024, that rate was 4.1% As an example, an endowment fund of $25,000 would have had $1025 to grant.
An endowed DAF is often used to create a philanthropic legacy. You may name successor advisors for your fund and you can also define how your fund will be used after you and your family are no longer advisors, allowing your OCF fund to be a lasting legacy.
A non-endowed fund. This fund can be “wholly expendable.”
You as the funder can make grant recommendations that may result in the distribution of some, or all, of the fund balance.
These monies generally go into a short-term investment pool.
Benefits of a DAF
Simplicity: The DAF sponsor handles all paperwork: record‐keeping, disbursements, and tax receipts when applicable.
Expertise: A DAF team includes experts in investments, accounting, and more. One chief goal is to help you define strategies to support your interests most effectively.
Tax Advantages/Efficiency:
Contributions are immediately tax‐deductible
When you donate long-term appreciated securities, you mitigate capital gains implications
You can support multiple charities from the fund
Flexibility: You can take your time to recommend grants, allowing for potential investment growth of the funds before they are distributed to charities.
Family legacy: A DAF is a powerful way to build or continue a tradition of family philanthropy.
Privacy: You can remain anonymous to the grant recipient if you prefer to.
Accountability: You may have a personal relationship with a specific advisor at your philanthropic sponsor, who will keep you informed about how your fund’s investments are doing, and how your grants are distributed. If OCF is your sponsor organization, you can communicate at any time via phone, email, or your account on the highly secure OCF portal.
Minimum DAF requirements
DAFs often request minimum initial charitable contributions to establish the DAF (typically $5,000 or more).
A DAF may have a minimum that must be established prior to making grants (e.g., $25,000). This could be established by giving $5,000 annually for five years.
A DAF donor speaks
PlayWrite’s development director, Katherine, and Susan, a long-time PlayWrite supporter had a conversation about donor-advised funds. Here’s an excerpt:
Katherine: How did you come to create a DAF?
Susan: It was first recommended to me nearly 20 years ago by my financial advisor. Until then, I had been writing checks at the end of each year to support organizations I cared about. With a DAF at Fidelity Charitable, it’s much easier to direct the donations to various groups. Also, the money coming into the account from investments isn’t taxed so there is actually more to give away.
Katherine: What are some other advantages of this type of DAF?
Susan: In addition to the fact that the funds are not taxed, it’s great to have Fidelity manage the paperwork. I can initiate a donation online whenever I choose. And I can donate anonymously, which I often prefer.
Katherine: And you said you had another DAF as well?
Susan: Yes, my mother put money aside for a DAF as part of her legacy, and the Oregon Community foundation manages that. This endowed fund generates annual income, which my brothers and I earmark for various organizations. We meet annually to plan our giving and we advise the OCF of our decisions. The advisors at OCF are proactive – reaching out to me once or twice a year – and always willing to meet to discuss areas of giving and particular organizations.
Katherine: Are there any disadvantages or difficulties?
Susan: None.
Katherine: Would you do it again?
Susan: Oh, yes! It’s a great way to give money to causes you care about; it maximizes what you give, and it’s easy. I highly recommend a donor-advised fund.
Did you know you can support PlayWrite with a gift from your donor-advised fund? Start the process today directly from our donation form!
