The ABCs of DAFs
It is the beginning of a new year, so what better time to make sure you are up to date with understanding DAFs as you help your clients plan their charitable giving for the months ahead.
Let’s start with the basics.
What is a DAF? A donor-advised fund (DAF) is a philanthropic fund established with a sponsoring charity like NPT UK that administers the fund. DAFs are becoming increasingly popular among philanthropists owing to their simplicity, efficiency and immediate benefits.
How does a DAF work? A donor makes an irrevocable charitable contribution to the sponsoring charity, receives immediate tax benefits and then recommends investments in the fund and grants to qualified charities from the fund in the short or long term.
Here are 5 reasons to make 2022 the year of the DAF. It’s as easy as ABC:
1. Alternative – A DAF is a compelling alternative for private clients to setting up their own private foundation or charitable trust. A DAF offers many similar benefits, but with fewer administrative burdens. Your client can name the DAF what they wish. They then have privileges to recommend how the DAF assets are invested and which charities to make grants to anywhere in the world. Also, there is no separate board of trustees for the DAF, as it is not a separate legal entity.
2. Benefits – Multiple tax benefits to help clients manage their charitable giving. Benefits include Gift Aid for UK taxpayers, additional claims for higher rate taxpayers and income tax relief for gifts of shares. Your clients can use offshore trusts and other fiduciary structures to make contributions to a DAF. If your client pays tax in the US and UK, NPT Transatlantic provides a tax-effective dual-qualified DAF. For more information on all the tax benefits visit our Tax Advantages page.
3. Convenience – A DAF is easy to set up and manage. A DAF can be set up in just a couple of days. The DAF sponsor, like NPT UK, takes care of any additional administrative work for donors and assumes all regulatory and reporting responsibilities, meaning your clients can focus on their giving.
4. Diversification – DAFs offer various investment options. Contributions to a DAF can be made using cash, shares, business interests, cryptocurrency or other assets including property and art. Your clients can then recommend how they wish their charitable contributions to be invested tax free. Your clients may chose from a selection of NPT UK approved investments. For higher value DAFs over £500,000, clients may recommend that their DAF is managed by an investment manager of their choice. ESG, ethical and impact investment options are also possible.
5. Effective – Your clients can make an impact immediately. Once a DAF is open, clients can start supporting charities straightaway. The DAF sponsor takes care of the required legal due diligence to make the grant. DAFs provide the freedom to give to charitable organisations all over the world from one vehicle.
To find out more about how NPT UK can help your clients with a DAF, contact us.
Natalie Pinon is Director of Development at NPT UK. She has over 15 years of experience working with philanthropists and impact investors to manage their giving.
NPT UK does not provide legal or tax advice. This blog post is for informational purposes only and is not intended to be, and shall not be relied upon as, legal or tax advice. The applicability of information contained here may vary depending on individual circumstances.