What are Donor-Advised Funds?

It’s always fulfilling when you donate to a worthy cause, especially when you know the funds will be used properly. Helping people and organizations has never been easier due to advances in technology and globalization. But, just like any other transaction or charitable donation, participating in the world of nonprofits demands a finite amount of research and awareness. There’s also the matter of convenience to consider, particularly if you or your company are considering sizeable donations to various organizations. Thankfully, it’s never been easier to ensure that your donation is going to a reliable and vetted source. One of the best ways to do this is by using something called a donor-advised fund. 


What is a Donor Advised Fund (or DAF for short)?



Donor-Advised Funds, sometimes called DAFs, are kind of like a designated checking account for money you allocate to charitable donations. Just like you want to have an accountant and a diverse portfolio for your normal savings, income and spending money, most people eventually realize that they want to be intentional about how they store and spend their charitable funds as well. 



Once you’ve established a DAF through a third-party nonprofit, this 501(c)3 sponsoring organization manages the account and its investments. Such hosting nonprofits could include community foundations to financial service firms’ nonprofit arms like Vanguard Charitable or Schwab Charitable. 



Why a DAF?


Donor-advised funds aren’t the only way to give to charity, but they are one of the most convenient and tax beneficial ways to give to specific institutions. It’s for this reason that DAFs have mushroomed in popularity, particularly within the past decade. The advent and growth of DAFs shows just how much philanthropists like to invest in organizations they believe in, which is always a good thing. In fact, Accounting Today cites the most recent 2019 DAF data report as showing the number of DAFs increasing by 300 percent since 2010, and grants coming out of them having tripled from $7.24 billion to $23.42 billion in the past ten years.


The National Philanthropic Trust emphasizes the three main benefits of DAFs for individuals and institutions, alike: first, donors receive an immediate tax deduction rather than after the tax year’s calculations are made; second, donors can recommend grants to their favorite charities whenever they like; and third, donors have ease of use by being able to donate and/or allocate funds at any time. 


Of course, DAFs aren’t the only way to give, and they may not be right for everyone. The main types of givers who will enjoy a DAF are those who can give regularly, choose specific causes where they’d like their money to grow, and anyone who would enjoy a convenient user experience akin to online banking. 


Where does the money go?


Contributors to DAFs can recommend where certain grants will go, but for the most part, donation decisions are made by the financial professionals managing them (those working for the sponsoring organization or 501(c)3 nonprofit. However, contributors may not always immediately know which organization they want to receive a grant, so doing some research about nonprofits you’d like to support always helps. 


Live Care Foundation is one such nonprofit that uses donated funds to help those who are in need. People living with disabilities or the elderly who require home care services and/or additional financial support for medical or life planning expenses all receive help from the Live Care Foundation. As healthcare costs rise and the population of the elderly and homebound grows, Live Care Foundation is dedicated to helping to lift the burden for as many Americans as possible. Find out more at livecaregrants.org today.

Rachel HarrisMs. Harris is a freelance writer and editor who enjoys reading, triathlons, and baking.