May 17, 2022

Understanding the Differences Between DAFs & Foundations

Author National Philanthropic Trust

Donor-advised funds (DAFs) are an increasingly popular giving vehicle in private client philanthropy.

Donors often choose DAFs as an alternative to setting up a charitable trust or foundation, due to their convenience, efficiency and flexibility.

Here are 5 things you should know when it comes to understanding the key differences between a DAF and a charitable trust or foundation that will help your clients achieve their philanthropic goals.

1. The start-up time: A DAF can be set up within days, whilst a foundation could take up to 6-9 months for Charity Commission and HMRC approval. With a DAF, there is no need to set up an independent Board of Trustees as the DAF is governed by the trustees of the charity that sponsors and administers the DAF, also known as the DAF sponsor.

2. Grantmaking: When using a DAF, all grantee due diligence is handled by the DAF sponsor, including for international grantees. Whereas with a foundation or charitable trust, the trustees are responsible for legal due diligence of grantees, including enhanced due diligence for international charities.

3. Admin and Reporting: Foundations and charitable trusts often need staff to oversee their everyday operations (which also adds to running costs), with responsibility for all accounting and legal documentation falling to the Trustees. However with DAFs, all regulatory reporting can be handled by DAF sponsors like NPT UK, who offer donors the flexibility of online access to manage their DAF account.

4. Investment: Foundations or charitable trusts have to regularly consider diversification of investment portfolios, which may result in obligation to diversify a concentrated gift. As DAF sponsors operate multiple DAFs, your clients’ individual donor-advised fund accounts may hold a concentration position.

5. Privacy: DAFs allow your clients to make charitable donations anonymously, if desired. Standalone charitable entities will have trustee names and accounts, including grantmaking activity, in the public domain.

Choosing the most appropriate giving structure will help your clients make the most of their philanthropic giving. NPT UK can help you find what works best for your clients.

To find out more contact us.

About the Author

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.