In the realm of benevolence, where compassion meets financial foresight, the Donor Advised Fund (“DAF”) has emerged as a catalyst for impactful giving. A DAF is not just a gift planning tool. It is the key to unlocking a world where generosity meets strategy. In the philanthropic sector, DAFs are emerging as one of the fastest growing and most effective giving vehicles among donors of all sizes. Among the 2,800 funds at the Jewish Community Foundation of Montreal (“JCF”), more than half are DAFs. There is significant philanthropic capital deployed through DAFs because of their flexibility and strategic approach to giving for both the donor and the beneficiary. In aggregate, the JCF and its clients granted close to 10% of its assets in 2023, substantially higher than the CRA minimum disbursement quota.

Let’s look more closely at what DAFs are, why they might work for you and some other important considerations to keep in mind.

What is a Donor Advised Fund and How Does it Work?

Simply put, a DAF is a fund (most commonly held at a community foundation or a foundation at a financial institution) that allows donors to make a charitable donation, receive an immediate tax receipt and then, over time, recommend grants to any Canadian qualified charity of their choice. The key aspect is that the donor advises on the quantum and recipient of the grant, and disbursements are made from the donor’s own named fund. The donor continues to advise on the granting process, while still enjoying the benefit of the tax deduction (or credit) from the donation. The JCF acts as the administrator for the fund, removing any need for the donor to complete arduous paperwork or tax returns. Finally, thanks to the structure outlined above, monies in DAFs can be invested to grow and/or maintain capital, so that gifts may be given in perpetuity. It is a win-win for the donor and for charities.

The first step to establish a DAF is to make an irrevocable gift. A donor can donate cash, appreciated public securities and many other tax-wise tools. The donor is provided with a donation receipt equal to the fair market value of the assets transferred. For individuals and corporations, this receipt can be used in the current tax year, or in the following five years. Monies can be granted from the DAF at any time, and in any amount, to Canadian qualified donees. Importantly, anyone can then gift assets to the DAF, including friends, family and even companies. The taxpayer that donates into the DAF is the one that receives the donation receipt. Gifts into a DAF can be done at any time, and we recommend that they are done in conjunction with general tax and estate planning to maximize the benefit of donation receipts.

A DAF can empower donors to strategically amplify their charitable impact, offering tax advantages, flexibility, and a streamlined approach to supporting causes that matter most.

Here are some benefits associated with a DAF:

• Immediate Tax Benefits: Contributions to a DAF result in immediate tax savings. The donation receipt received by the donor can be used in the same tax year as the donation, or in the following five years.

• Flexibility in Contributions: Donors have the flexibility to contribute any amount they desire to the DAF, providing freedom in the timing and size of their charitable donations.

• Privacy Protection: Contributions to a DAF provide a high level of confidentiality compared to direct charitable donations. The DAF structure therefore allows individuals to support causes without publicly disclosing the details of their charitable giving, offering an added layer of discretion for those who value privacy in their philanthropic endeavors.

• Advisory Capacity: Donors retain advisory benefits over the DAF, allowing them to recommend where and when grants are distributed to qualified charities.

• Strategic Philanthropy: DAFs enable strategic planning for charitable giving, allowing donors to plan and execute their philanthropic initiatives in a thoughtful manner.

• Streamlined Administration: A DAF is not an independent legal entity and therefore, the administrative tasks associated with charitable giving is virtually non-existent, reducing the burden on donors in managing individual donations.

• Efficient Granting: The structure of DAFs facilitates efficient and organized granting to multiple charitable organizations.

• Flexibility in Grants: As DAFs are part of a public foundation or financial institution’s foundation, donors are not limited on the type of charity they can direct. Instead, their philanthropic wishes are covered under the objects and purposes of the housing organization.

• Personalized Impact: The advisory role empowers donors to personalize their approach to giving, aligning charitable contributions with their values and goals.

• Timely and Efficient: The establishment of a DAF is very easy – you can start using your DAF for your philanthropy in as little as a day. At the JCF, there is also no minimum fund balance needed to establish a DAF and no separate start-up cost or fees.

Important Considerations

When a donor establishes a DAF, careful consideration should be given to their preferences if they are unable or unwilling to continue providing grant recommendations. Implementing a transparent succession plan for the DAF ensures the fulfillment of the original donor’s philanthropic intentions throughout their lifetime and beyond.

We have two main mechanisms in place to fulfill the donor’s philanthropic wishes:

  1. Nominating a Replacement Chair and Secondary Replacement Chair to the Advisory Committee of the DAF

The role of a Replacement Chair (and Secondary Replacement Chair, in the event the first Replacement Chair is also unwilling or unable to recommend grants) is to take over the grant recommendation duties of the current Chair (normally, the original donor). By nominating a Replacement Chair(s), donors can be assured that someone they trust is always the individual making grant recommendations. Often, we see the Replacement Chair as the spouse or children of the donor; the people who understand the donor’s philanthropic intentions the best. However, one should still be aware that this option puts the granting decisions in the hands of an individual who is not the original donor and may not always be aware of or act in line with the donor’s intent.

  1. Preparation of a Letter of Agreement between the original donor and the JCF

In certain circumstances, donors may want to specifically outline their wishes with respect to any remaining fund balance or subsequent fund gifts (such as bequests), in the event that the original Chair (usually, the donor) is unable or unwilling to recommend grants. These wishes would be outlined in a separate “Letter of Agreement” which the donor can update or change at any time.

In the Letter of Agreement, the donor can outline their philanthropic wishes, with options ranging from the establishment of endowment funds to benefit charities in perpetuity, to the entire disbursement of the capital or the creation of new DAFs for the remaining family members. Our Philanthropic Advisors are always available to walk through these options with our donors and help draft these agreements.

Importantly, future Replacement Chairs cannot deviate from the wishes outlined by the donor in the Letter of Agreement, ensuring that the donor’s wishes are respected and enacted upon as they have outlined.

In essence, a DAF emerges not only as a charitable bank account but as a dynamic and enduring tool that allows individuals to leave a lasting legacy of strategic and impactful giving. As donors navigate the realm of philanthropy, the DAF proves to be an advantageous tool, offering both immediate benefits and the opportunity to create a lasting and meaningful impact for generations to come.

It is important that donors consult with their professional advisors when undertaking any tax planning. For further details or inquiries please reach out to us via email at [email protected] or by phone at (514) 345-6414.

Grants at the JCF can be done via our Online Fund Advisor Portal at www.jcfmontreal.org.

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