by Michael Todd, Philanthropic Consultant with Transform Philanthropy
The donor-advised fund, or DAF, is Canada’s fastest growing giving vehicle, and yet it’s very possible you have never heard of it. It’s a giving vehicle that allows a donor to give today, receive the tax benefits today, and to grant to their favorite charity or charities over time. It will change your giving from reactive cheque-writing to very strategic philanthropy. In practical terms, you donate to a foundation that sponsors DAFs, and then provide recommendations on where that foundation ultimately grants the funds. Because you made an irrevocable donation to the foundation and received a tax receipt at that time, you have legally given up control of the assets. That’s why we call it a recommendation, but generally foundations that offer DAFs are cause-agnostic, meaning will send the funds to any properly registered Canadian charity that you choose.
With online donor-advised funds, you can set up an account, donate some money via your credit card, and you’re all set. Some, like GiveWise, have no minimum. I would encourage you to grab your credit card, set up an account and put $25 in it. Then, find YESS in the database and request a grant to them! It will give you a chance to see for yourself how easy this is.
The rest of this article will refer to a broader donor-advised fund, where someone has donated financial assets like stocks or mutual funds. In cases like this, there is an investment account that holds these assets. They can be held, changed, and then some can be sold and converted to cash when it comes time to make a grant to a charity.
A good way to think of the DAF is as two separate transactions:
- You make a donation into the
- You request a grant to charity out of the DAF at any time.
Let’s look at some of the benefits.
1. Immediate tax credit, future grant distribution
One of the core benefits of the DAF is the ability to claim an immediate tax credit in the year you fund the account,
regardless of when you make a request to grant the funds
to a charity of your choice. This allows for some strategic tax planning. Imagine a year where you receive a bonus, or some other significant windfall. By contributing to a DAF, you can reduce your current tax burden while reserving the decision of which charities to support for later. This is a very important element of a DAF: You put assets into it when you have them, or when you’re facing a tax bill, or not necessarily when you are asked for a donation. Remember those two separate transactions above!
2. Tax-free growth
The funds within your DAF are typically invested, with the potential for tax-free growth. The reason for the tax-free growth is simple. Remember, the funds legally belong to the foundation sponsoring the DAF, and as a charity, that foundation does not pay tax. This means your charitable dollars have the power to compound tax-free over time, ultimately maximizing your impact on the causes you care about.
3. Streamlined giving
All of your charitable giving can now be made from your DAF. Regardless of how many different charities you grant to, your tax receipts are stored in your DAF account. No more shoeboxes under the bed, no more lost receipts, and no more writing cheques!
4. Time for research and due diligence
Choosing the right charities to support can take time. A DAF allows you to contribute funds upfront and then conduct research before recommending grants. You can make sure your donations are aligned with your evolving philanthropic goals and have the greatest possible impact.
5. Family philanthropy
DAFs can be a powerful tool for fostering a culture of giving
within your family. You can involve family members in the grant recommendation process, creating shared values and a lasting legacy of giving. You can even name your DAF and include your family name if you wish, further solidifying your philanthropic commitment. This is a great way to involve the next generation.
6. Professional wealth management
While some DAF sponsors offer in-house professional wealth management services, many will allow you to continue to work with your own trusted advisor. Having access to these experienced professionals helps ensure your fund grows over time, maximizing the resources available for future grants.
7. Long-term strategy
DAFs can be the cornerstone of your long-term philanthropic strategy. You can continue contributing to your DAF throughout your lifetime, providing a steady stream of support for the causes you care about. You can even designate successors who will continue your charitable legacy after you’re gone.
Donor-advised funds are a powerful tool for individuals who want to maximize the impact of their charitable giving. From immediate tax benefits and tax-free growth to flexibility and streamlined giving, DAFs offer a convenient and efficient solution for strategic charitable giving. Frankly, using a DAF for your giving is also fun and very satisfying. Give this some thought, and also give it a try, and see how your giving experience changes.
Michael Todd, MFA-P, a philanthropic consultant with Transform Philanthropy, assists donors with their charitable giving, and is an expert in the donor-advised fund.
Mike is one of those rare people who loves what he does, and isn’t afraid to say it. He started his career with 12 years in wealth management. He then spent a decade in the charitable sector before moving to China for two years, simply because he wanted to see that country and experience it for himself.
Connect with him on LinkedIn, or reach out to mike@transformphilanthropy.ca if you have questions.
DAF Fast Facts
from Influence, Affluence & Opportunity: Donor-advised Funds in Canada by KCI and CAGP Foundation
We strive to do all we can to ensure that YESS will always be here for youth who needs us, as a place where youth are inspired to look to the future with hope, purpose, and the courage to strive for a better tomorrow.
Will you consider including YESS in your estate plans? Every legacy gift to YESS is a thoughtful gift from the heart, a meaningful part of your life story, and a way to help YESS thrive in its commitment to champion youth who reach out in their need for healing, relief, and guidance.
There are many options for planned giving. Some donors have made a contribution to the YESS Endowment Fund; others have established a separate fund in their family’s name; some have designated YESS as a beneficiary in their will or through an insurance policy. There are many ways to plan your gift. Some offer tax advantages today, and others through your estate.
We’d be happy to work with you, your family, and your advisors on a confidential basis to ensure that your gift meets your philanthropic goals.
If you have already provided for a legacy gift to YESS in your estate plans, we’d be delighted to learn in confidence about your future plans. Thank you for your life-changing gift! It will surely help to enable struggling young people to heal, improve their wellbeing, find connection and stability, and realize healthy futures.
To learn more about making a legacy gift, please contact Eileen Papulkas by phone at 780.468.7070 x298 or by email at eileen.papulkas@yess.org