Philanthropy through Donor Advised Funds

Philanthropy often conjures up images of people with vast wealth and power; names such as Andrew Carnegie, John Rockefeller and Bill Gates often come to mind. They were the titans of their industries, but they are now known or remembered for their generous charitable contributions to society. You can give in a manner similar to theirs without having the millions of dollars involved in setting up a private foundation. 

A Donor Advised Fund (DAF) is a popular way to give because you do not need a tremendous amount of money and it enables people of even modest means to establish one. DAFs provide a simple, effective and tax-efficient way to make your philanthropic dreams a reality. They mimic the qualities of a private foundation without the added expense and hassle of managing an organization. It’s an investment account administered within a sponsoring public foundation to manage all of your charitable giving. The sponsoring public foundation does all the record keeping, administration and issues the tax receipts. 

HOW DOES IT WORK? 

1. Open a fund with a name and purpose. This can be an individual, a family, or a company. You can even open a fund to memorialize a loved one.
2. Make an irrevocable gift to your fund. This can be cash, mutual funds, or appreciated stock. An account can be opened with a minimum contribution of $25,000. You receive a tax receipt for your initial donation and all subsequent contributions. You only get a tax receipt when you put money into the fund and not when the funds are paid out to the charity.
3. You decide which charities to support and the allocation they are to receive annually. You can change the charities at any time and you can name a successor to take over.
4. The fund is invested in a balanced portfolio and a portion is allocated annually to your selected charities. Canada Revenue Agency (CRA) requires a minimum annual distribution of 3.5% of the assets.
5. The fund grows tax-free over time, allowing you to potentially make a larger gift than your original contribution. With continued growth, the fund can create a lasting legacy for future generations. 

CREATE A MULTI-GENERATIONAL LEGACY 

DAFs are an attractive option for donors interested in getting family members involved, thus creating a culture of giving within the family. Families can pool all of their resources in one place and decide together which charities they would like to give to. For legacy purposes, donors can name a successor to assume the role of the annual granting recommendation or choose to provide a standing recommendation that names specific charities to receive grants into the future. This is a way to ensure that the worthwhile causes you and your family value are bequeathed to in perpetuity.

DEADLINE FOR CHARITABLE TAX CREDIT 

The last two months of the year are the peak charitable giving period as donors try to get their charitable tax credit in on time. DAFs allow flexibility in situations where the donors need an immediate tax credit but haven’t figured out what their ultimate beneficiary charities are going to be. Choosing what charities you would like to support is a major decision and uncertainty is a natural part of the consideration process. You receive an immediate tax deduction for your contribution to a DAF and you can recommend the charities at a later time when you are ready to decide. Note that the minimum distribution required by the CRA must be paid out annually. 

ANONYMOUS GIVING

Opportunity for anonymous giving is valuable to certain donors. Fundraising pressures that come from charities do not always sit well with donors who would prefer to plan and give in private. Donors have the option of remaining anonymous and, unlike a private foundation, can protect one’s identity if requested. For those who wish to remain anonymous, donors can opt to give under the sponsoring foundation’s umbrella. This allows donors to choose what information is disclosed to the charities. 

Erase the perception that only the very wealthy can be involved in philanthropy. With a modest contribution, your family can create your own Donor Advised Fund. Create a lasting and meaningful legacy while reducing your taxes and maximizing the donations to the charities that you already support. 

Tax Planning

Tax planning can be also complex and hard to understand, because everyone's situation is unique. Below, we look at different financial situations and how we'd suggest each person proceed to get the most favorable result.

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