Who Donates via DAFs?

Individuals, families or groups can create and/or contribute to a DAF account. They will then advise their DAF provider how the assets will be invested via grants to nonprofits. Donors can typically indicate if the gift is unrestricted or designated to a specific cause or program.

How does a DAF work?

1. To establish the fund, an individual makes an irrevocable tax-deductible contribution (cash, stock, real estate, etc.) to a sponsoring organization, community foundation or financial institution. Individuals receive a tax receipt and tax benefits when funds are deposited into their DAF.
2. The DAF sponsoring organization oversees those funds as they grow tax free.
3. The assets within the fund now legally belong to the sponsoring organization but the DAF account holder retains advisory privileges over disbursements made from the DAF in addition to the investment strategy.
4. DAF account holders can recommend single or recurring donations to charitable organizations. Funds in a DAF can only be used to support organizations that are tax-exempt 501(c)(3) and classified as public charities under 509(a).
5. Once the DAF sponsoring organization approves, the recommended donation is made to the qualified charitable organization, such as Lucky Duck Foundation.
   
   

How to Create a DAF?

Here’s the typical five-step process on how to set up a DAF, and how a charity (like the Lucky Duck Foundation) eventually receives a donation from a DAF:

1. Create a DAF and pick a charitable sponsor (or sponsoring organization). 
2. Make a tax deductible DAF donation. Once your fund is open, you will need to make a contribution to your DAF in the form of cash or a non-cash asset. Assets that can be donated: cash, stocks, real estate, cryptocurrencies, mutual funds, non-publicly traded assets, etc. The tax benefits are one of the biggest advantages of using DAFs. As such, DAF donors receive an immediate tax deduction for gifts made to their DAFs.
3. Name account, beneficiaries (such as Lucky Duck Foundation), and successors.
4. Grow donations tax-free in your fund. Assets deposited into DAFs can be invested for growth, with no restrictions on how long these assets can remain in the account. That means donors have the potential to see their contributions increase in value over time. Over time, grants from DAFs can exceed the original value of the donated assets.
5. Support nonprofits via DAF grant recommendations. Once assets are donated to a DAF, they can be directed to qualifying charitable organizations via grants or grant recommendations. Grants can be made on a rolling basis, or else a beneficiary can be named that will receive assets in a fund once the owner passes away.