A guide to donor advised funds | UKs fastest growing giving vehicle

An introduction to DAFs

Donor advised funds (DAFs) are the UK’s fastest-growing philanthropic giving vehicles. They offer several advantages over charitable foundations, namely cost savings, tax-efficiency, flexibility, and ease of administrative, fiduciary, and reporting requirements.

In most instances, individuals make an initial donation into a fund and then can top-up whenever they want. While the donations are irrevocable and become the assets of the managing charitable institution, the individual will advise the institution where they would like the money to go.

The due diligence to confirm the charitable purpose of the beneficiary organisation sits with the DAF manager, or their delegated authorities. Once that has been completed, the gift is then made on behalf of the DAF. Depending on the provider, other services and advice may be offered, including advisory services which can include strategic planning, impact measurement, and grant management.

How does a donor advised fund work?

One feature of DAFs, which makes them so attractive, is their flexibility. DAFs can be funded with a variety of assets; cash, shares, and real estate, but also property such as vintage cars, artand rare books. Donations of shares have been quite frequent over the past few years, which is largely a reflection of stock market performance. The tax incentives associated with a reduction in capital gains taxes makes this option increasingly popular with donors.

The assets within the DAF can be diversified much like the donor’s other non-DAF accounts. Diversification can allow for a mixture of investment into growth funds or stocks, social impact repayable finance, ethical investing, multi-year grants and one time gifts. This portfolio balance can allow for the original invested amount to grow and for the impact to be multiplied with loans that are repaid and re-loaned on several occasions. Having this flexibility and personalisation makes DAF vehicles deeply satisfying. It allows trust holders to enjoy their giving while the charitable institution absorbs the responsibilities of account management.