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Donor advised fund

two hands exchanging money like in a donor-advised funds

Definition of a donor-advised fund

A donor-advised fund (DAF) is a solution for corporate philanthropy. Instead of managing grants from the company or in a private foundation, the donor puts his charitable contributions in an independent fund. This fund has its proper management. The donor can only advise the team of the fund to donate his contributions to a specific charity. But, in fine, it’s always the fund that will choose where to put the funds.

Behind the concept

The firsts donor-advised funds were created in the 1930s in the USA. For a long time, it hasn’t been a popular method to make corporate charity. But it has grown over the years, and in 2018, DAFs represented more or less 80 billion of dollars. It has also spread in Europe too.

But why is it used so much? There are incentives to the use of a DAF, which can lead to fidelity to it. First, there is the easiness of its use. Donors pay a fee when becoming a member of the fund. Through this, they ensure that the assets will be managed and that they won’t have anything to do regarding the attribution of the grants.

Second, donor-advised funds ensure tax deductions on the gift. Some of the DAFs enables it even at an international level. This is better than the rules that apply to the private foundations or the company-managed gifts. This is also the source of critics of the regulations on tax deductions for DAFs. Indeed, the tax deductions are applied as soon as the donor gives to the fund. But there are some companies that use it as a deposit account. Their contribution is not given to charities.

An example of DAF

The largest donor-advised fund is Fidelity Charitable. It is now the second largest grantmaking organisation after The Gates Foundation, according to the Chronicle of Philanthropy 400 list.