Donor Advised Funds (DAFs) continue to be the fastest growing charitable giving vehicle in Canada. As such, they offer an opportunity for philanthropists—in all ranges of giving—to make a significant impact through the charities they care most about.
What is a DAF?
The Canada Revenue Agency (CRA) defines a donor advised fund as “a fund segregated into donor accounts, owned and controlled by a registered charity. Each account is comprised of contributions made by individual donors. Donors may provide ongoing non-binding suggestions on payouts from DAFs, but it is the charity or foundation's sole responsibility to make such decisions.”
A DAF has also been referred to as a charitable investment account created by a donor for the sole purpose of “advising” the charitable organization on their non-binding suggestion to grant to charities and other qualified donees. An important differentiation here is that unlike a regular investment account—where the person owns the account and the assets—the donor makes an irrevocable donation to create the DAF, receives a charitable tax receipt and the assets are then owned by the registered charity.
The donor enters into an agreement or Deed of Gift with the charitable foundation. The donor can also name a successor advisor or advisors in the agreement to continue suggesting grants to charities if the fund is established for the longer term and the donor is thinking about succession planning or family legacy.
Similar to a private foundation, the donor can name their fund and support charities and other qualified donees in the areas they care about most. However, in contrast to a private foundation, it is relatively convenient and faster to set up a donor advised fund. There is less administration, less cost and donors can have anonymity in their giving through a DAF.
The “right” DAF
When a donor is thinking about starting a DAF, there are many considerations in selecting the right DAF program and sponsoring organization.
What makes DAFs accessible to many donors wanting to create a positive impact in community are the minimum DAF amounts.
For a wealth management donor, DAFs minimums range from $25,000 and up based on their financial institution. However, a donor can establish a fund at a community foundation for $10,000. If a donor is working with a financial advisor, there are DAF foundations where the advisor can continue to manage the assets of the DAF in accordance with the investment policy statement of the foundation. In other cases, the total assets from all the DAFs are managed in a pooled fund.
Donors may also be considering the type of fund for their DAF
If longer term, a donor may consider a foundation with an endowment—which may or may not allow for capital to be granted. A second type of fund is a “spend down” fund (i.e. assets are invested but the intention is to grant the assets and capital growth out for a specific period). A third fund type is a flow-through DAF. A flow-through is not invested and the intention is to grant out the full amount of the fund over a short period.
When considering an investment strategy, various foundations may offer an impact investing option. Impact investing is a strategy to achieve a positive social or environmental impact in addition to financial returns. Impact investing can be aligned to granting strategies such as affordable housing for greater impact.
Technology expectations of the donor and how they engage with their DAF can also be a consideration. Some DAF programs provide the opportunity for the donor to have their own donor portal and manage their engagement with their DAF, including suggesting grants, through their phone, tablet or other devices.
As DAFs continue to grow in Canada, so will the supporting programs, technology platforms and DAF foundations available to donors wanting to make a positive impact, both short-term and long-term, to the communities and causes most meaningful to them.
Eric Saarvala is Head of Corporate Sustainability, Raymond James Ltd., and Executive Director of the Raymond James Canada Foundation. Eric.Saarvala@raymondjames.ca
Arundel Gibson MBA, MFA-P is a Client Consultant at Cidel Asset Management. Arundel joined Cidel in 2023 and is responsible for serving Cidel’s private clients. She brings over twenty years of experience in leadership roles at corporate and not-for-profit entities. Prior to Cidel, she led Canadian philanthropic advisory services for a multinational, professional services firm’s family office operations. agibson@cidel.com
