The term "donor-advised fund" is not statutorily defined; yet the donor-advised fund (DAF) is an increasingly popular vehicle of charitable giving that has had a particularly substantial impact on philanthropy over the past several years. The Chronicle of Philanthropy reported that the 88 organizations that provided figures for both 2003 and 2004 to The Chronicle collectively held over 80,000 DAFs. These organizations collectively held $13 billion in assets and distributed $2.6 billion to charities.
A donor-advised fund is generally understood to be a fund maintained by a public charity (the "sponsoring organization"), subject to an agreement under which the donor has the right to make recommendations about distributions and/or investments. The donor-advised fund is owned, controlled and administered by the public charity, which has a fiduciary obligation to ensure that the donor-advised assets are used exclusively for charitable purposes.
Donor Benefits:
- An immediate income tax deduction
- Avoidance of capital gains taxes if the gift is appreciated property
- Reduction of the gross estate by the amount of the excluded asset
Advantages Over Setting Up a Private Foundation:
- Donations to a donor-advised fund qualify for the more favorable charitable deduction treatment of a gift to a public charity than donations to a private foundation
- Donor-advised funds are not subject to the self-dealing, payout and taxable expenditure rules applicable to private foundations
- Sponsoring organization generally takes care of all the administrative work
- Typically, low contribution minimums
- Ease and relative low-cost in establishment
- Privacy, if donor desires
- Ability to receive donations from private foundations, CRTs, CLTs
Disadvantages Over Setting Up a Private Foundation:
- Lack of control over distributions (grant-making)
- Lack of control over investments
- Less visibility and prestige than family-named private foundation
- Lack of flexibility (e.g., grant-making areas)
- No ability to hire staff (such as the donor and his or her family members)
Where to Find Donor-Advised Funds:
- Community foundations (e.g., The San Francisco Foundation, Peninsula Community Foundation, East Bay Community Foundation)
- Nonprofit organizations (e.g., where donor wants to establish endowment-type fund such as a donor-advised scholarship fund)
- Commercial sponsors (e.g., Vanguard, Fidelity, Schwab)
- Independent sponsors (e.g., American Endowment Foundation, National Philanthropic Trust, MyCFO Foundation)