UNDERSTANDING DONOR-ADVISED FUNDS (DAFS)
Canadians, as expected, are quite generous. Over the last decade or so, millions of Canadians have made the choice to support the work of thousands of charitable organizations in Canada. Our generous nature hasn’t changed, but how we give has continued to evolve. DonorAdvised Funds (DAFs) have been in Canada since the 1950s, however, recently, they have surged in popularity. According to a report from the Strategic Insight, assets in Canadian DAFs tripled between the years 2006 to 2016, with an
estimated value being nearly $4 billion in 2016.
The surge in popularity of DAfs in Canada trails the U.S., by the end of 2016, there was an estimated &78.6 billion in assets in the US held in DAFs. But what is a DonorAdvised Fund? Donor-Advised Funds emerged as a less costly and easier to administer alternative to private foundations. Usually, private foundations are really only practical for the wealthy. DAFs on the other hand provide some of the benefits of a foundation but are accessible to more people. DAFs are typically sponsored by independent charities, public foundations, and financial institutions. In short, the concept is that by donating to a DAF, you receive an immediate tax receipt, and then at some point in the future, you provide instructions to the DAF about which charities you want them to send the money to. There are several benefits to DAFs. Firstly, they are flexible vehicles. You can donate cash, securities, life insurance proceeds, and other financial assets.
A. major benefit they offer is that by separating the gifting decision and the tax receipt, a DAF allows people to develop a plan that meets their charitable desires
By: Clinton Orrand reduces their tax burden. The money remains in the DAF account, where it can be invested and grow, allowing you to decide how the funds should be allocated to registered charities.
If you’re in a higher tax bracket, a contribution to a DAF provides an immediate tax relief. Once the money is in the account, you have time to research and decide which causes you would like to support.
If you’re also concerned about the public attention your gift could create, a DAF could be the solution. When money is allocated from the DAF to the charity, the original source of funding doesn’t have to be revealed.
As well, a DAF provides a way to pool resources, allowing friends and family members to also contribute and receive a tax receipt for their contribution. There are many features to DAFs and the above details should be discussed with your financial professional to ensure DAFs fit in with your financial plan.
