Donor Advised Fund

Donor Advised Fund

A donor-advised fund is a charitable giving vehicle administered by a public charity and created for the purpose of managing charitable donations on behalf of an organization, family, or individual. A donor-advised fund offers the opportunity to create an easy-to-establish, low cost, flexible vehicle for charitable giving as an alternative to direct giving or creating a private foundation. Donors enjoy administrative convenience, cost savings, and tax advantages by conducting their grantmaking through the fund.

The New York Community Trust pioneered the development of donor-advised funds in 1931. Although the second such fund was not created until 1935, in the decades since the field has greatly expanded as commercial sponsors, educational institutions, and independent charities started offering the service. Donor-advised funds are the fastest growing charitable giving vehicle in the United States of America, with more than 175,000 donor-advised accounts established, holding over $37 billion in assets.

Because the fund is housed in a public charity, donors receive the maximum tax deduction available, while avoiding excise taxes and other restrictions imposed on private foundations. Further, donors do not incur the cost of establishing and administering a private foundation, including staffing and legal fees. Since the maximum tax deduction is received by the donor at the time of the gift, the foundation administering the fund gains full control over the contribution, granting the donor advisory status. As such, they are not legally bound to the donor, but make grants to other public charities upon the donor's recommendation. Most foundations that offer donor advised funds will only make grants from these funds to other public charities, and will usually perform due diligence to verify the grantee's tax-exempt status.