Donor advised funds
- Donor advised funds are vehicles for individual, family or business charitable giving, administered by a third party, and designed as an alternative to direct giving or setting up a charitable foundation.
- Donor advised funds are easy to set-up and use, and there are a variety of schemes available which suit most donors’ needs.
- They can be funded through cash donations, through payroll giving or by gifts of shares.
Donor advised funds are structured in a similar way to charitable trusts, but because they are operated centrally by others, they remove the need for a donor to find his or her own trustees or deal with administrative aspects.
How donor advised funds work
Donor advised funds tend to fall into two categories; named funds at community foundations or other host organisations (such as Prism or The Bulldog Trust) and charity accounts. In both cases the donor decides how much to give and pays it into the fund. The host organisation offers grant-making expertise and monitoring and reporting processes, and deals with the administration and distribution of funds.
Donor advised funds are a tax-efficient way of giving to charity, as they can claim back the tax on Gift Aid donations and add it to the amount in your account. If you are a higher-rate taxpayer, the periodic statements you will receive provide a useful record of your giving and will help you make your personal tax claim on your Self Assessment tax return.
Community foundations are pioneers of the Donor Advised Fund, which provides many of the same benefits as a private family charitable trust (including all tax reliefs) but allows philanthropists to make use of the community foundation’s grant-making, due diligence, monitoring and reporting processes. Once a fund is established, the trustees of the community foundation take legal responsibility for the fund. Donors are guided through a variety of options, reflecting whether they have a lump sum immediately available or whether they plan to build an endowed fund (usually of at least £25,000) over a longer period.
Once the fund is up and running, it is up to the donor to determine their level of involvement with funding decisions, as the foundation uses its local knowledge to support organisations and projects that have been assessed for their value to the community. Donors can, if they wish, engage more closely with the causes they care about by giving time and other resources.
The community foundation will continue to monitor recipients of grants on behalf of donors and keep them informed of their progress. Meanwhile, professional investment managers will be applying their expertise to build the value of the fund.
Charity accounts with intermediaries such as Charities Aid Foundation and Stewardship, are a type of donor advised fund and are similar to bank accounts, designed especially for charitable giving with all the relevant tax benefits. There are many ways to give to your chosen charities through a charity account: generally donations can be made online, with charity cheque books, via debit cards or vouchers, or by telephone, post or standing order.
Reasons not to use donor advised funds
If you are giving relatively few donations of larger amounts, or if you use payroll giving and want to benefit a particular charity regularly, it may be less expensive (and not much more complicated) to give directly to your chosen causes. You would save the administration charges, and because no interest is paid on your charity account, there could be a sizeable cost if you maintain a significant balance in your account.
A version of this article, written by Philanthropy UK, was published in a previous edition of A Guide to Giving (2008).