Contributing Alternative Assets to DAFs Can Maximise Charitable Impact

Donor-advised funds (DAFs) are known for the flexibility and ease with which they can be established and used. Their advantages extend to the variety of assets they can accept as charitable contributions, which is good news for both donors and charities.

Gifting stock and alternative assets via a DAF is straightforward. The ability of DAFs to simplify the process of donating alternative assets makes it easier for donors to use these assets to fund their philanthropy, as many charities are not equipped to handle non-cash gifts directly. By accepting non-cash assets, DAFs can therefore tap into a larger pool of potential donations and increase the amount of funds available for charitable grants. So, what types of assets can be contributed to a DAF?

Donor-advised funds accept a wide array of assets as contributions, including:

Cash: For donors who pay tax in the UK, gifts of cash are eligible for Gift Aid.

Publicly Traded Shares: Donating appreciated shares is one of the most tax-effective ways your clients can be philanthropic. This includes shares, bonds, funds and OEICs (Open-Ended Investment Companies).

Tangible Property and Real Estate: Such gifts would be liquidated once the contribution has been made to the DAF.

Alternative Investments: These include private equity fund interests and hedge fund interests, restricted stock, privately or closely held stock, limited partnership interests and cryptocurrency.

Legacies, Bequests and Testamentary Gifts: A DAF may be named a beneficiary of a bequest under a will, trust, life insurance or pension plan.

Grants and Transfers from Charitable Trusts, Foundations or Other DAF Programmes: Your clients may transfer funds from an existing charitable trust, UK charity, other charitable entity, or from another DAF.

Offshore Contributions: NPT UK can accept contributions to a DAF offshore. Your clients can use offshore trusts and other fiduciary structures to make contributions to a DAF.

What happens to the assets my client contributes to a DAF?

Once received by NPT UK, the assets will be liquidated, and your client may recommend that the funds are invested to generate income and capital growth. The DAF provider, like NPT UK, will take care of the administrative responsibilities. Donors can then recommend grants to qualified charitable organisations at any time.

What tax relief will my client receive?

A DAF sponsor is a registered charity and your client will therefore receive the same tax reliefs as they would any other charitable contribution. In addition, a contribution of shares has an additional tax benefit to the donor. If contributed to a DAF, the donor doesn’t pay any capital gains tax on shares that have increased in value, and they can claim income tax relief on the total fair market value of the contribution on their self-assessment tax return.

The ability of DAFs to accept non-cash assets is beneficial to all parties engaged in charitable giving. It offers tax-efficient giving options for donors, increases the amount of funds available for charitable purposes, and ultimately facilitates greater charitable impact.

To find out how NPT UK can help you find what works best for your clients, contact us.

About the Author

John Canady, CEO of National Philanthropic Trust UK, has 25 years of experience working across the business, nonprofit and government sectors. He specializes in creating and managing philanthropic funds for donors and family offices around the world who wish to base their philanthropy from the UK.