What the Convenience of Donor-Advised Funds Can Offer Donors and Advisors
With various grantmaking vehicles available to donors to help accomplish their charitable goals, it is important you and your clients understand how they vary in terms of the benefits they offer.
Below we explore the key differences between donor-advised funds and private grantmaking trusts or foundations.
A DAF can be set up in days. Once your clients submit a completed DAF application, their account is opened and ready to receive contributions and recommend grants. Setting up a separate trust or foundation is a lengthier affair, taking between six and nine months due to the requirements of the Charity Commission and HMRC approval.
Administration and governance
While foundations and charitable trusts often need staff to oversee their everyday operations, a DAF provider handles all administrative work, including managing investments, recordkeeping, gift receipts, and grant administration. Providers like NPT UK can also offer donors the flexibility of online access to manage their DAF account.
Private trusts or foundations are obliged to appoint a board of trustees who are legally responsible for the charity. DAFs have no need for a separate board of trustees, as they are governed by the DAF provider’s trustees.
Assets and investments
Donors are increasingly interested in contributing a wide range of assets to their philanthropic portfolio. While charities can rarely facilitate assets other than cash donations, a DAF can also accept publicly traded securities, appreciated shares, tangible assets like property or art, and alternative investments such as private equity and hedge fund interests. Once contributed, these assets are liquidated, giving donors an opportunity to convert assets into immediate grant recommendations or invest them for future grantmaking.
All grantee due diligence is handled by the DAF provider, including for international grantees, so your clients can have peace of mind for regulatory compliance. For foundations or charitable trusts, it is the trustees who are responsible for legal due diligence of grantees, including the enhanced due diligence needed for international charities.
With a DAF, your clients can make grants anonymously and donor names are not recorded in the public domain. Grantmaking via a client’s stand alone charity highlights your client’s identity and also requires that the Trustee names of that charity are in the public domain.
Choosing the right giving vehicle ultimately depends on your clients’ philanthropic objectives. Donors can also set up both a charity and a DAF for extra flexibility to support different causes, organisations, and geographies outside their charity’s mission.
Whatever the case, being aware of the differences between various giving structures will help you best support your clients in achieving their philanthropic goals.
To learn more about how a DAF could be convenient for your client, contact us.
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.
NPT UK is not affiliated with any of the organizations described herein, and the inclusion of any organization in this material should not be considered an endorsement by NPT UK of such organization, or its services or products.