What is a Donor Advised Fund and Should I Have One?

A Donor Advised Fund, or DAF, is a giving vehicle established with an organization that is recognized as a charity, by Canada Revenue Agency. It allows donors to make a charitable contribution, receive an immediate tax receipt and then recommend grants from the fund over time. A DAF is also referred to as a ‘giving fund’ or a ‘giving wallet’ and can be useful for large and small donors alike.

There are several benefits in using a DAF which include: The cost-effectiveness and ease of setting one up – it can be done in minutes with no setup costs. It also simplifies administration for the donor – the donor simply makes a contribution to the DAF, and the organization distributes the funds in accordance with the donor’s wishes. He or she receives a single tax receipt on an annual basis. There’s also flexibility in timing – the DAF allows for separation of the timing of a gift and the distribution to the charities of choice. When funds are donated to the DAF, it is eligible for an immediate tax receipt even if the donor has not yet decided which charities will receive the funds.

If considering setting up a Donor Advised Fund, it is important to remember that once funds have entered your ‘giving account’, unlike a bank account, they can no longer be drawn back out for personal use. These funds have been allocated to the charitable sector and must be used that way. A criticism of DAFs has been that donors fund them to obtain the immediate tax receipt, but the funds do not actually get deployed for charitable work. Therefore, I always encourage people to consider their giving fund as a flowing stream instead of a reservoir.

If you would like to learn more about setting up a Donor Advised Fund, I invite you to send me an email to mark@covenant.ca