A donor-advised fund (commonly called, a DAF) is a charitable giving vehicle to manage charitable donations on behalf of organizations, families, or individuals. To participate in a donor-advised fund, a donating individual or organization opens an account in the fund and deposits cash, securities, or other financial instruments. They surrender ownership of anything they put in the fund but retain advisory privileges over how their account is invested, and how it distributes money.
The biggest criticism of DAFsis that they give philanthropies the ability to warehouse wealth for long periods of time rather than redistributing it to charitable activities. SDG Impact Fund has a flowing asset strategy that strives to put 85-95% of its assets to work.
All diagrams in this memo come from SDG Impact Fund's "History of Donor Advised Funds handout" document.
Terminology
The terminology of Donor Advised Fund is sometimes confusing as it can refer to the sponsoring organization, an account within the sponsoring organization, or the aggregate of smaller Donor Advised Funds.
How they work
When a donor moves funds to a DAF, they get a tax deduction from putting the funds in. Once the funds are inside the DAF, all of the gains and growth are also untaxed.
With a donor-advised fund, there are three main ways in which you the individual can request funds to be dispersed:
Granting. The Donor Advisor can make a gift to another non-profit or to another Donor Advised Fund.
Investing. The Donor Advisor can invest the funds in the DAF in both traditional capital markets and also directly into a company. A DAF can take up to 25% equity in a company and sit directly on the cap table.
Paying Expenses. The Donor Advisor can use the funds in the DAF to be able to contract or hire. The funds from a DAF can pay an invoice, pay an accountant or a bookkeeper they can go pay a real estate management entity that might manage some properties. If it's invoiceable it can get paid out from a DAF.
No charity or 501(c)3, can hand money to a person - But a person or organization can be hired to do work. If a person has an LLC, that LLC can be hired, and then paid out as a member of the LLC.
DAF vs. Charities
A DAF presents more advantages than a charity for both the Donor and the organization. Donors have more options on how to split and direct their donation while maintaining advisory privileges, while the organizations gain more ways to distribute the funds
Reference
https://mythos.one/johnzdanowski/f4f345
Context
Tags: #WIP#index