Donor advised funds: What are they and how do you open one?

A donor advised fund allows you to enjoy an immediate tax benefit while being able to make a meaningful difference. You can put money into your donor advised fund at any time without committing to any giving decisions until you’re ready.
Opening a donor advised fund at Foundation SA gives you access to expert granting support and guidance, while our team of professionals takes care of the administration and compliance.
This article will look at what a donor advised fund is and how it works; the benefits of a donor advised fund; how to open a donor advised fund; and how to decide if a donor advised fund is right for you.

What is a donor advised fund?

A donor advised fund (DAF) is a giving account that is established under the structure of a public ancillary fund such as Foundation SA (Trustee: Australian Communities Foundation).
A donor advised fund is also known as a DAF, a sub-fund or a named sub-fund and is similar to having your own personal account to manage your giving. Some people think of a donor advised fund as being similar to a charity foundation but sometimes this refers to a charity itself and can be confusing. A donor advised fund uses a different structure to a charitable trust which is a separate legal entity.
Donor advised funds are growing in popularity in Australia because they are more accessible and have less of an administrative burden than private ancillary funds (PAFs) which are sometimes called private foundations.

How does a donor advised fund work?

A donor advised fund works by having money deposited by the fundholder into their DAF which is like having a giving account. The DAF is administered by the public ancillary fund under which it is established. The public ancillary fund also takes care of governance, compliance and manages investments with the intention of growing the corpus.
For example, a DAF holder at Foundation SA makes deposits into their fund and receives an immediate tax benefit. They can then request where, when and how much of that money is distributed to charities of their choice. Foundation SA processes the grants, taking care of the compliance and administration. All funds are 100% responsibly invested at Foundation SA, ensuring your money makes even more of a positive impact.

How to establish a donor advised fund

Creating your own donor advised fund through a community foundation like Foundation SA is quick and easy.

1. Establish your fund

After completing a small amount of paperwork, your donor advised fund can be set up in 48 hours or less.

2. Donate into your fund

Deposit money into your fund and receive an immediate tax benefit.

3. Decide where and when you would like to give

Choose the charities you’d like to support at a time that’s right for you. Foundation SA follows your instruction, taking care of the grant process for you.

4. Track the impact of your giving

Track all donations, investment, growth and grants in your secure online portal.

Start a donor advised fund today

What are the benefits of a donor advised fund?

There are many benefits of using a donor advised fund for your charitable giving. A donor advised fund allows you to give tax effectively to the issues that matter to you. You can experience all the joys of giving without having to worry about the administrative burden.

The benefits of using a donor advised fund include:

• Tax deductibility on your contributions to your donor advised fund
• Quick set up time: within 48 hours to establish your own fund
• Donate to any DGR1 charities – you choose who you want to give to
• Connect with and learn from like-minded donors who are also part of your public ancillary fund’s donor community
• No minimum annual distribution for your individual fund
• Opportunities to increase your impact by giving collectively with members of your donor community
• You can fundraise for your causes and receive public donations into your fund
• The duties of Trustee and Directors are fulfilled by the public ancillary fund under which your DAF is established
• Investments are managed by the public ancillary fund’s investment manager. At Foundation SA these investments are 100% responsibly invested
• You can give anonymously if you wish to maintain your privacy.

Can you get your money back from a donor advised fund?

No, you cannot ‘get your money back’ from a donor advised fund. When you donate into your donor advised fund that money can only be used to make donations to registered charities, it cannot be withdrawn or used for other purposes.
This is mandated by taxation law (which enables the tax deduction for contributions to your donor advised fund).
In some instances, it is possible to transfer the balance of your donor advised fund to a different public ancillary fund. Portability options are usually outlined in the guidelines of the public ancillary fund you have joined. Foundation SA has welcomed several donor advised funds that were established elsewhere to the Foundation SA donor community.

How much does it cost to set up a donor advised fund?

It costs nothing to set up your donor advised fund at Foundation SA.
After your donor advised fund is established, a 2.2% administrative fee applies on a sliding scale, meaning as the size of your fund grows the administrative fee goes down.

What happens to a DAF after you die?

At Foundation SA, fundholders are encouraged to complete a Statement of Wishes that outlines the areas of focus and charities they would like their fund to support if they would like their fund to continue after they die. The Fund then continues to grant according to their wishes.
Alternatively, Foundation SA fundholders can request that their DAF be closed when they die, and any remaining monies will move to the general granting pool for distributions approved by the public ancillary fund’s trustees.
Another option is to prepare a succession plan that nominates another person who will take your place as fund advisor for your DAF when you die.

Differences between donor advised funds and private foundations: Which option is best for you?

When deciding if a donor advised fund or a private foundation is best for you, there are a few key questions to ask:

1. How involved do you want to be in the administration, governance and investment of your fund?

If you would prefer to focus on the giving and less on the administration, a donor advised fund may be a more suitable option for you. If you want to administer the fund yourself, a private foundation may be a better option.

2. How much money will you start your fund with?

A donor advised fund can be started with an opening balance of $20,000 or less.
The recommended starting amount for a private foundation is $1 million because of the costs involved in setting one up.

3. How quickly do you want to set up your fund or foundation?

A donor advised fund can be set up in 24-48 hours.
A private foundation takes usually 6 weeks or more to set up.

4. Would you like to be part of a community of donors or prefer to go it alone?

Having a donor advised fund through a community foundation like Foundation SA gives you access to a group of likeminded local people and learning events that can help build your knowledge, your impact and your enjoyment of giving.

Compare more of the differences between a donor advised fund and a private foundation here.