7 Myths About Donor-Advised Funds
Donor-advised funds (DAFs) continue to grow in popularity. Between 2011 and 2019, DAFs increased from nearly five percent of individuals giving to more than 12 percent. In addition, the number of DAF accounts more than tripled in 2020 and continued to increase during the pandemic. Yet, there are still misconceptions about the tax-efficient giving vehicle, and several myths about DAFs persist.
MYTH #1: Only extremely wealthy people can open DAFs
Traditionally, DAF granting was limited to high-wealth individuals, but today anyone can establish a DAF, individuals, companies, charities, and foundations. Fees vary depending on the sponsoring organization, but with a nonprofit such as TrustBridge Global Foundation, there’s no minimum contribution amount to open an account, making it accessible to everyone.
Myth #2: You can’t give internationally through a DAF
International philanthropy or global philanthropy can be complicated. Donors must consider a complex network that includes domestic tax laws in their country, international taxation rules, anti-corruption and counter-terrorism laws, and sometimes foreign law governing contributions.
While not all DAFs can facilitate cross-border charitable giving, the TrustBridge Global Foundation is recognized as a sponsoring organization of DAFs and a public charity. In Switzerland, it’s structured as a charitable organization at the cantonal and federal levels. TrustBridge continues to build a network to deliver effective and efficient international giving.
MYTH #3: It’s better to donate directly to charity than to pay the fees associated with DAFs
Fees associated with DAFs vary depending on the sponsoring organization; however, those fees are often less than the processing fees that come with donating with a credit card, which generally falls on the charity.
Structured as a charity that sponsors a DAF program, TrustBridge does not charge fees. Instead, it equitably shares the cost of operating the foundation among the DAFs by assessing them based on their proportionate balance or activity. These assessments are made against amounts already held within the foundation rather than paid separately as a fee.
Many DAFs calculate the structure of the fees and the operational assessment based on the size of the gift. For example, CAF America starts at eight percent for single gifts and five percent for DAF gifts. Global Giving starts at twelve percent, and reduced amounts are only available for more significant contributions. TrustBridge offers a fixed one percent regardless of the size of the gift, so more of your donation goes to charity.
MYTH #4: You won’t be able to involve your family or create a charitable legacy with DAFs
It’s easy to name family members as additional advisors or successor advisors for a DAF, making it possible for the fund to exist for multiple generations. Additionally, a DAF can be named as a beneficiary of other charitable giving vehicles. For example, the remainder of a donor’s charitable trust could be used to set up a donor-advised fund, which the donors’ heirs advise.
MYTH #5: A nonprofit won’t know who its donors are if the donors give through a DAF
In most cases, grants that charities receive from DAFs are accompanied by donors’ names and addresses. Charities can then connect with and thank donors who give through DAFs just as they can with donors who give directly. In addition, just as with direct giving, donors who wish to remain anonymous can do so with a DAF.
MYTH #6: You don’t have any control over your DAF
While it’s true that the sponsoring organization of a donor-advised fund has ownership of its contributions, the donor retains the right to make recommendations about the investment of the fund and grants to charities and make unilateral decisions regarding the grant recommendations. Grant recommendations are commonly approved by the sponsoring organization so long as they are within the granting policy guidelines of the sponsoring organization.
Myth #7: DAFs are just a fad
In addition to the tax advantages they offer that maximize charitable impact, DAFs provide flexibility, transparency, and convenience. It’s no wonder DAFs have staying power!
The TrustBridge Global Model
TrustBridge Global provides a centralized charitable account to donors, allowing them to make charitable contributions, receive an immediate tax deduction, and then recommend grants from the fund over time. In addition, as a fiscal sponsor, TrustBridge Global ensures expenditure responsibility or equivalency determinations for all donations.
As part of a global network that collectively comprises more than four billion dollars in assets, representing more than 50,000 donors, TrustBridge Global disperses your funds where they can make a meaningful difference, even change the world. In addition, our partnership with UBS, the largest bank in the world, ensures that your contributions are secure.