DAFs: Back to Basics in Six Questions

As the new year begins, your clients may be planning to chart new charitable territory, diversify the types of causes they support, or double down on their central giving priorities. No matter what, it’s time to take stock and make sure you are familiar with the foundations of donor-advised funds (DAFs) as you help your clients plan their charitable giving in 2024.

Let’s start with the basic questions:

What is a DAF?

A donor-advised fund (DAF) is a philanthropic fund established with a sponsoring charity, like NPT UK, that administers the fund. DAFs are a flexible alternative to setting up an independent charitable structure and are growing in popularity among UK philanthropists because of their simplicity, efficiency, and immediate benefits.

How does a DAF work?

Once a DAF is open, a donor makes an irrevocable charitable contribution to the sponsoring charity and receives immediate tax benefits. That donor then recommends how the DAF assets should be invested and subsequently granted out to qualified charities. Donors can make grants immediately, annually, or in the longer-term. Clients can access and manage their DAF account online if they wish.

Why set up a DAF?

A DAF is a powerful alternative for your clients to setting up their own private foundation or charitable trust, offering many similar benefits, but with fewer administrative burdens. Your client can name the DAF what they wish and establish a giving philosophy and approach. There is no separate board of trustees for the DAF, as it is not a separate legal entity.

What are the tax benefits?

Benefits of a DAF include Gift Aid for UK taxpayers, additional claims for higher rate taxpayers and income tax relief for gifts of shares. Your clients can use offshore trusts and other fiduciary structures to make contributions to a DAF. If your client pays tax in the U.S. and UK, NPT Transatlantic provides a tax-effective dual-qualified DAF. For more information on all the tax benefits visit our Tax Advantages page.

What are the investment options?

Contributions to a DAF can be made using cash, shares, business interests, alternative investments, offshore assets, or other assets including property and art. Clients can recommend how they wish their contributions to be invested, allowing their charitable capital to grow tax-free, and may also choose from a selection of NPT UK-approved investments. For DAFs with a balance greater than £500,000, clients may recommend that their DAF is managed by an investment manager of their choice. ESG, ethical, and impact investment options are also possible.

Are they effective?

Once a DAF is open, your client can make an impact immediately, supporting charities in just a couple of days. DAFs provide the freedom for your client to give to charitable organisations all over the world from one vehicle. They also provide peace of mind for your client as the DAF sponsor takes care of all the legal and operational due diligence and processes.

To find out more about how NPT UK can help your clients with a DAF this new year, contact us.

About the Author

Natalie Pinon is Executive Director, Development at NPT UK. She has over 15 years of experience working with philanthropists and impact investors to manage their giving.