What Is A Donor-Advised Fund?
The charitable giving space in Canada is certainly well populated, with over 170,000 charitable and non-profit organizations in 2021 (of which 85,000 are registered with the CRA), contributing an average 8.1% of total national GDP.
With such an abundance of causes, each with their own story and proposed impact, many philanthropically-minded Canadians have explored and implemented Donor-Advised Funds in their wealth plan to achieve their philanthropic goals. What is a Donor-Advised Fund, and what are the benefits of using one? Read this article to learn more.
What Is A Donor-Advised Fund And How Does It Work?
A Donor-Advised Fund, or “DAF”, is a charitable investment account sponsored by an independent public charity to which a donor can contribute, while retaining the ability to recommend to the sponsor which registered charities will receive grants from the fund.
This structure offers investors and their advisors the ability to continue to manage the assets contributed into the fund, making charitable grants from the fund’s asset base to the causes they care most about. While grants to causes can be made at any time, their contribution into the fund would immediately provide them a donation receipt, enabling them to claim the donation tax credit as part of their overall wealth plan, potentially generating significant tax savings in the present. In the meantime, the contributed assets can be invested to grow in a tax sheltered environment as the investor considers where, when, and how much they would like to give.
What Are The Benefits Of A Donor-Advised Fund?
The DAF structure allows philanthropically-minded investors to make significant, ongoing contributions to the causes they care about in a manner that provides them with flexibility and control, without the need to form their own foundation. This minimizes cost and complexity, and ensures that contributions can be directed in the most fulsome way possible without erosion from the operating and overhead expenses associated with private foundations.
Another benefit of the DAF structure is privacy, since unlike their private foundation counterparts, there is no public disclosure of directors’ names and visibility of each gift made. Given that philanthropy is often a very personal part of an individual’s wealth plan, the ability to maintain discretion and privacy while being charitable is a powerful consideration. Individuals may intend to contribute non-cash gifts as part of their wealth plan, for instance by making gifts of publicly traded securities to both benefit the cause in question while also creating tax savings to the individual, since such a gift does not result in a taxable capital gain for the donor. However, certain charities are not set up to receive these sorts of contributions. A DAF, on the other hand, is able accept these contributions, resulting in a donation tax credit and a capital gains inclusion rate of zero to bring about the desired tax savings. Cash proceeds are paid out by the DAF to the target charity, thereby enabling the individual to make good on both their financial strategy and on their charitable intentions.
Bloom Investment Counsel, Inc. is a well-established Toronto-based independent, privately-owned boutique investment management firm providing customized, actively managed, Canadian and U.S. dividend-paying portfolios for wealthy individuals, family offices, foundations, corporations, institutions and trusts.
Founded in 1985, Bloom has experience in managing in excess of $2.5B in assets over the years. We believe that generating independent cash flow is central to the success of our clients’ portfolios because it provides capital for the present day, if needed, while continuing to preserve and build wealth for the future.
Follow Bloom Investment Counsel, Inc. on LinkedIn to stay up to date on our most recent articles.
This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.