DAF 101: A Guide for Wealth Advisors

As private client advisors, you’re often asked how clients can make the biggest philanthropic impact, while also being tax-efficient and administratively light. One of the simplest, most effective options today is a donor-advised fund (DAF). Here’s what you should know when discussing DAFs with clients.

 

What is a DAF?

A DAF is a philanthropic fund established by a donor at a sponsoring charitable organisation, such as NPT UK, which administers the fund on behalf of the donor. The donor contributes assets (cash, shares, or other forms of assets) to the DAF sponsor, establishes and names the fund, and receives applicable tax relief. Once the DAF is established, the donor can recommend investments to grow the DAF balance and can grant to charitable organisations nearly anywhere in the world.

Because the DAF is administered by the sponsoring charity, clients don’t need to manage legal, administrative, or compliance issues themselves. The sponsoring charity handles verification of recipient organisations and global grant due diligence.

 

How does a DAF work?

1. Contribute assets: The donor makes an irrevocable contribution, often cash or appreciated assets, like publicly traded shares. NPT UK can accept a wide range of contributions including complex assets and alternative investments.
2. Get tax benefits: Upon contributing, the donor receives tax relief under relevant rules (e.g. Gift Aid for UK taxpayers; additional reliefs for higher rate taxpayers; income-tax relief on gifts of shares). For US connected donors, NPT Transatlantic offers a tax-efficient solution for those paying taxes both in the US and UK.
3. Name the fund & advisors: The donor names the fund (e.g. “The Smith Family Charitable Fund”), can appoint one or more advisors, and creates a legacy plan where they can name successors and beneficiaries.
4. Make investment recommendations: DAF assets can be invested tax-free using pre-approved investment options, including impact investments for donors seeking alignment with ESG or other philanthropic goals. For DAFs with larger balances, your clients may recommend using their own investment manager.
5. Grant when ready: At the donor’s discretion, immediately or later, they can recommend grants to qualified charities almost anywhere in the world. The DAF provider conducts due diligence and handles all grant administration, reporting and compliance.

 

Why recommend a DAF to your clients?

• Tax efficiency & immediacy: Clients enjoy immediate tax advantages upon contribution, even if they don’t decide yet which charities to fund.
• Flexibility and simplicity: Unlike setting up an independent trust or foundation, which can be complex, costly, and time-consuming, a DAF can be established within days. Once set up, clients can recommend grants to charities around the world, while having peace of mind for regulatory compliance.
• International grantmaking: For clients with international philanthropic interests, many DAF providers support grants to charities worldwide, removing the complexity of due diligence for cross-border giving.
• Philanthropic asset-growth potential: Because DAF contributions can be invested, the fund may grow over time tax-free, potentially enabling larger future grants than the initial contribution alone.
• Legacy & succession planning: Clients can appoint successors advisors, ensuring the DAF and the donor’s philanthropic intentions continue beyond their lifetimes, offering a lasting giving legacy.

To find out more about how a donor-advised fund can help support your clients’ philanthropic goals, contact us.