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Here are answers to your common questions about donor advised funds, a popular approach to charitable giving.

If you’re intrigued by the idea of investing in a donor advised fund (DAF), you’re not alone. The number of individual DAFs rose to nearly 2 million in the U.S. in 2022, up 2.9% from 2021.1

So, what are DAFs, why are they increasingly popular, and what should you consider if you’re looking into one? Keep reading for an introduction that will help answer these and other common questions about DAFs.

What are donor advised funds?

Donor advised funds are personal charitable giving accounts that offer you flexibility, accessibility and tax benefits for charitable giving.

Unlike one-time donations, the contributions made to DAFs are invested to grow over time while allowing you to direct grants to nonprofits at any time. They provide some of the advantages of a family foundation but have a much lower point of entry and allow you to hand off administrative, investment management and fiduciary responsibilities to the DAF sponsor. In some cases, DAFs are hosted by community foundations like the Saint Paul & Minnesota Foundation.

How popular are donor advised funds?

DAFs have gained popularity in recent years. In 2020, contributions to and grants from DAFs rose in the U.S. even as we experienced the pandemic, national social movements and economic instability.1

In fact, as they responded to urgent needs in their communities, DAF donors gave well above historic trend lines. Over the last five years, grants from DAFs have increased by 118.5 percent.1

202020212022
Estimated DAF grants to qualified charitable organizations$34.67 billion$47.83 billion$52.16 billion

What are the benefits and advantages of donor advised funds?

A DAF can be a great way to invest in the future of your community. DAFs provide a simple, flexible way for you to give back to the charitable organizations you care about most. From contributing to a DAF, to recommending grants, to potentially involving your family in giving, DAFs offer convenience.

In addition, DAFs provide a means to engage multiple generations of your family in giving. You can name children or grandchildren as successor advisors on your fund to continue your giving legacy beyond your lifetime.

What can you contribute to a donor advised fund?

You can fund a DAF in a variety of ways. Some of these ways include cash and stock, but also non-cash assets such as:

When you transfer your assets to the DAF, you typically receive an immediate tax benefit. Then your contributions can appreciate tax-free to grow your charitable capacity over time.

What are the rules and restrictions on a donor advised fund?

When you open a DAF, you are choosing to set aside funds for charitable giving, much like a private foundation. You have advisory rights to recommend gifts out of the DAF to qualified nonprofits at any time.

One of the benefits of partnering with a sponsoring organization like the Saint Paul & Minnesota Foundation is you will work with a local, dedicated philanthropic advisor to fulfill your charitable mission. Unlike a private foundation where primary control of managing the fund is in the donor’s hands, a partner like the Foundation has the experience to help you start, manage and continue to grow your giving.

What is the typical size of a donor advised fund? Is there a minimum amount which you must contribute and grant?

In the U.S., the size of individual DAF accounts vary greatly, with an average size of an estimated $117,500 in 2022.1

The minimum initial contribution and minimum grant vary by host organization, so it’s important to ask about those requirements when setting up a DAF. The Saint Paul & Minnesota Foundation has a $10,000 initial gift minimum to open a donor advised fund. The smallest allowable grant size at the Foundation is $250.

Could a donor advised fund be right for you?

There are several things to consider in deciding whether a DAF is right for you. You may want to explore a DAF further if you:

  • Are interested in setting aside money now or at the end of the year but want to grant it to nonprofits later or over a number of years
  • Want to support multiple nonprofit organizations in a given year
  • Prefer to give anonymously
  • Expect a year of higher income, a sale of assets, an inheritance or other boost to your income or assets and want to set aside some or all of it for future charitable giving through a vehicle that potentially provides immediate tax benefits
  • Have a goal of organizing family giving or want to give the next generation (or generations) a way to give back
  • Want a partner that handles the accounting, legal and investment services of your DAF, like the Saint Paul & Minnesota Foundation
  • Considered starting a family foundation but want to explore other options that require less administration and management (See How to Decide Between a Donor Advised Fund and a Private Foundation.)

To further consider if a DAF is right for you, read Is a donor advised fund with a community foundation right for you?

How do you set up a donor advised fund?

As more people look for simple, accessible, flexible vehicles to maximize their charitable giving, DAFs are filling a need by allowing them to set aside dollars for charitable giving today so they can help meet the needs of tomorrow.

If you are interested in opening a DAF, consider these following steps:

1. Contact one of our experienced gift planners by calling 651.224.5463 to answer any questions you may have.

2. Have your financial advisor reach out to us at 651.224.5463 or philanthopy@spmcf.org

3. Save this donor advised fund information form to your computer, then complete and return the form to us at philanthropy@spmcf.org

Sources:

1. “The 2023 DAF Report,” The National Philanthropic Trust, 2023

The Saint Paul & Minnesota Foundation does not provide tax, legal or accounting advice. Please consult your own tax, legal and accounting advisors regarding your individual situation before engaging in any transaction.

This post was originally published on Aug. 16, 2022, and updated on April 19, 2024.

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