Charitable giving through a donor-advised fund

A donor-advised fund (DAF) is a flexible charitable vehicle you can use to flow donations through to your favourite charities today and as part of your estate planning. Like a private foundation, a DAF enables the donor to make multiple donations over time and support a variety of causes. However, the administrative burden and costs are much lower with a DAF.

What’s involved in setting up a DAF?

Establishing a DAF requires that an irrevocable gift be made to a public foundation that is recognized as a Canadian charity. The gift can be made during your lifetime or on death through your will. DAFs generally accept a variety of assets, including:

• Cash gifts
• Proceeds of registered plans through beneficiary designations (e.g., Registered Retirement Savings Plans and Tax-Free Savings Accounts)
• Securities
• Life insurance

Check with the public foundation administering the DAF to make sure the asset you want to donate will be accepted.

What are the advantages of a DAF?

Among the advantages of a DAF, four stand out.

1. Streamlined giving

Regardless of the number of charities you wish to support, all gifts go to the DAF. In the context of an estate, this makes it easier for the executor (liquidator in Quebec), as the estate makes the gift to the DAF, rather than to each charity.

2. Immediate tax benefits

Once the DAF receives the irrevocable gift, the public foundation issues a donation receipt for the full amount, even though the gift can support the chosen charities over time.

3. Relatively low cost

There are usually no start-up costs to establish a DAF, unlike with a private foundation. Instead, costs to cover legal, accounting and management fees are calculated as a percentage of the assets in the DAF—often on a sliding scale, so the greater the value of the assets, the lower the percentage.

4. Long-term philanthropy

Although an estate bequest to a DAF is a one-time event, the donated assets can support charities over time. Two DAF features facilitate this:

• Any growth on the assets in the DAF is tax-free, leaving more money to benefit charities
• Payments of income can go to charities on a scheduled basis each year without depleting the capital, in accordance with the agreement between the donor and the public foundation

Note that this agreement, which is advisory in nature, is necessary because the assets are legally owned by the public foundation administering the DAF. It sets out the charities and the donations they will receive.

How can I use a DAF to make donations now and later?

If you want to use a DAF as part of your estate plan, CI’s Charitable Giving Program, backed by Benefaction can help you achieve this. Should you wish to make charitable donations during your lifetime, you can establish the DAF now (with a name you choose) and make an initial donation and subsequent donations as you wish. Then you can add instructions in your will or through beneficiary designations to add more assets to the DAF on your death.

 

I would like to extend a special thank you to my colleague, Magali Dussault-Brodeur, Wealth Planning Consultant at CI Assante Private Client, for her invaluable assistance and unwavering support in preparing each blog.

 

About the Author

Valerie Markidis

As a Wealth Planning Consultant with CI Assante Private Client's Wealth Planning Group, Valerie works closely with our team to provide solutions for our clients in the intergenerational transfer of wealth, with a focus on estate planning. Valerie joined CI Assante in 2022, bringing 14 years of experience at two major trust companies, where she held national responsibility for Wills and actively supported advisors across Canada with questions and interpretations related to Wills, Powers of Attorney and Trusts.

Prior to her tenure with the trust companies, Valerie worked in private practice, where wills and estates were some of her key focus areas. She is lawyer with a Bachelor of Law degree from Osgoode Hall Law School and an Honours BA from Queen’s University.