Donor Advised Funds Overview

Donor Advised Funds (“DAFs”) allow charitable donors to take advantage of the immediate tax benefits of a charitable contribution combined with a continuing ability to recommend where and when funds are distributed.

Because the administrative overhead is borne by the sponsoring organization, DAFs are an attractive alternative to forming a charitable foundation.

The attractiveness of DAFs has fostered a new form of charitable organization whose sole purpose is to serve as a sponsor.

National Charitable Endowment will work with you as a sponsor to create a simple, independent, flexible, and cost-effective charitable Giving Program.

Donor Advised Funds Basics

Simple steps to make a donation

Simple steps to make a donation

Simple steps to make a donation

Simple steps to make a donation

A donor advised fund (“DAF”) is a tax-effective vehicle for philanthropic giving.

  • It is sponsored and administered by a non-profit entity (like NCE) in which a donor opens an account in order to easily make charitable contributions.
  • In this case, NCE is the public charity, or sponsor, that manages all aspects of the administration of the donor’s donations.

Once you, the donor (a family, individual, or organization), decides to give to a DAF, your DAF is in effect a charitable savings account that grows tax free until you identify the charities to which you want to give.

  • There is no timeline for giving to which the donor needs to adhere.

Donor advised funds offer donors an attractive alternative to setting up a foundation or giving directly to charities.

  • DAFs offer a much easier, more flexible and less expensive option than setting up a foundation, and DAFs have fewer restrictions than foundations.
  • As compared to giving directly to a variety of charities individually, DAFs allow greater flexibility in allocating donated private securities of all kinds across a variety of assets.
    • You can write one check, and give to multiple charities, with flexibility in terms of timing.

A donor (an individual or an organization, including corporations and foundations) donates assets to the donor advised fund, creating a separate account.

  • The donor attains advisory status, meaning they choose who to give to, the amount given, and the timing.

NCE, at the direction of the donor:

  1. Invests or oversees investment of assets (for the time before grants are made) as needed.
  2. Makes grants to a qualified charitable organization or organizations.
    • A DAF sponsor (NCE) is legally required to conduct due diligence to ensure the organizations are 501(C)(3) tax exempt entities, and that the donor does not receive anything in return for the gift.

At the time the donor donates assets or securities to their account, the donor receives their maximum tax deduction.

  • US tax law allows the donor to take a tax deduction equal to the fair market value of the donated assets at the time of sale, including appreciated securities of all kinds.
  • Donors have the flexibility to choose the times and schedules most advantageous for them to make donations to their designated charities, both now and later.
  • If the donated securities decline in value after donation, the taxpayer retains the original tax deduction.

Convenience, flexibility, and ease of use for donors

  • NCE allows clients to easily create a giving program and a legacy of philanthropy.
  • NCE gives donors flexibility in terms of implementing giving programs.
    • Donors have the flexibility to donate to charities on their own schedule.
  • Many of the rules and regulations that apply to private foundations do not apply to donor advised funds.
    • Most notable is the 5% annual giving rule, however, DAFs generally distribute a larger portion of their total assets to operating charities than many foundations do, exceeding 20% in 2016.
  • NCE handles all of the administrative aspects of making grants.
    • Donors and/or their advisors retain full ability to both direct investments and recommend distributions to charities.

When you make a donation to your Giving Program through NCE, your contributions are invested and allowed to grow tax-free over time.

You and your advisor have broad discretion over how your Giving Program is invested, according to your philanthropic and investment goals.