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Jun 25, 2021

Benefits of giving through Donor Advised Funds

There is a common misconception that Donor Advised Funds (DAFs) are very complex structures and reserved for multi-millionaires. However, DAFs are accessible and can provide a great level of flexibility and significant tax advantages in planning your philanthropic efforts.

As a founder of CWB McLean & Partners, Kevin Dehod was appointed CEO in January 2014. Passionate about providing wealth counsel to clients, Kevin still manages a limited client base in addition to advising on our corporate strategy. He is responsible for providing leadership and coaching to the firm’s teams.

I used to think that giving through structures like Donor Advised Funds (DAFs) and foundations was only reserved for multi-millionaires. Then I spoke with Denise Castonguay from Canada Gives and learned how accessible these options are, and the benefits of giving to charities through them.

Let’s start with the basics. There are three types of registered charities in Canada: Charitable organizations (like the Red Cross), Private Foundations (like the Max Bell Foundation), and Public Foundations (like Canada Gives, United Way, and the Calgary Foundation).

How DAFs work through a foundation

A public foundation like Canada Gives can host and administer DAFs on behalf of a family, individual or estate. You can initiate DAFs for your family by contributing almost any type of asset - cash, public securities, art, real estate, life insurance, and sometimes even private company shares.

In speaking with the team at Canada Gives, they felt the minimum size for a DAF would ideally be around $100,000, although some clients prefer to start with less and build up their DAF over time. Once you make your initial contribution, you can add assets to the DAFs at any time in the future.


Benefits of using DAFs

There are significant tax advantages when contributing to DAFs through a public foundation. For example, when donating securities in-kind, the capital gains inclusion rate is zero – meaning no capital gains tax is incurred and the donor receives a donation receipt for the full market value of the contribution.

Figure 1 shows the general operating structure of DAFs and how the gifting can flow to multiple charities.

Figure 1: How it works for the donor

How it works for the client

Source: Canada Gives

What I appreciate most about DAFs is the total flexibility they offer for giving and tax planning. Once you establish a DAF, you decide when to give to charities throughout the year, which charities to give to, and how much you want to allocate out of your DAF to each charity. The main federal regulation that a DAF or a foundation must follow is to give a minimum of 3.50% of the year-end market value of the DAF (averaged over two years) to a charity, or charities, each year. There’s no rule limiting the maximum amount you can give away.

The other aspect of flexibility is that clients can direct Canada Gives on who they would like to manage and invest their DAF assets. Our clients have expressed peace of mind knowing that the team at CWB McLean & Partners, whom they know and trust, will be helping to steward and guide their legacy through the investment management of their DAFs.


Private foundations vs. DAFs

We often get questions about the differences between a private foundation and a Donor Advised Fund. While we can’t go into all the details here, there are significant differences, some of which are outlined in Figure 2 below.

Figure 2: Key differences between private foundations and Donor Advised Funds

DAFs vs Private Foundations

Source: Canada Gives

If you’re interested in learning more about the benefits of DAFs, I encourage you to check out the Canada Gives website. You can also watch the video conversation  between Denise Castonguay and myself as we go over DAFs and giving strategies in more detail, or reach out to me at [email protected] to get started on establishing a high-impact foundation.

Happy giving!