All you need is a place, a name, and the initial grant — and you’re ready to give.

Once you’ve decided on the parent charity it’s time to give your fund a name and transfer the initial assets to establish it. Almost immediately, you’re able to start advising the parent charity on how you’d like that money given away.

The initial contribution

You open your account with an amount that must meet the minimum set by the parent charity. Often these minimums are $10,000 or $25,000, but they can be as high as $100,000 or more. In fact, that limit may be one of the reasons you selected the parent charity you did.

Youth Discount

Some aspiring philanthropists, such as children and young adults, may be working with a smaller budget than the usual minimum requirements. But there are still ways for them to open a DAF: Some sponsoring charities recognize the need to encourage giving and allow young people to open a DAF with a reduced minimum — sometimes as low as $2,000.

You can amass the total required amount by combining several kinds of assets, such as cash, appreciated or restricted stocks, and real estate, but often the individual elements must be valued at a certain amount. Parent charities may impose these rules to streamline the process of liquidating the assets that aren’t already cash, as that’s their responsibility. In the case of appreciated securities, liquidation may be completed as quickly as the next trading day. Other, less liquid, gifts may take as long as a few months to process.

After your initial gift, you can keep making additional gifts to increase the size of your fund. At most parent charities, you can give as often as you like, but the subsequent gifts must usually be of a specified minimum value.

How a Donor Advised

What’s in a name DAF?

With a new DAF, you have two types of naming to do. First, you give the fund itself a name. Parent charities generally recommend that it include your own name, as well as an indication of the causes that you support — for example, The Erin Smith Wildlife Habitat Fund. But you can remain anonymous if you prefer and select a name that protects your identity.

Next, you name your advisers and your successors. An adviser assists you in recommending grants from the fund. Successors are named to take over all the fund’s responsibilities at your death, including recommending grants and investments. Some parent charities allow you to name multiple successors who can either split the account equally or share responsibility jointly. Some may limit how many future generations can advise the fund.

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How often, how much to give?

You can recommend as many grants as you like each year, as long as they are for amounts that meet the minimum set by the parent charity, usually in the $100 to $250 range. One thing to keep in mind is that because the donation takes a less direct route then when you simply write a check, the transaction may take a little longer — often up to two weeks. So, if you are counting on a donation to be processed and received by a charity by a certain date — for example, in time for a certain event or calendar day, you will need to plan for the extra time it might take for the fund to complete all the necessary transactions. This is especially true of end-of-year gifts, given during the busiest time for philanthropy professionals.

Due diligence, in this context, means research or investigation to confirm or disprove presented facts, usually about an organization or charitable project. It is always a necessary step in completing a grant recommendation.

Recommending grants

Once the fund has been created, you can begin to recommend grants that you would like to be paid out of your DAF account. This part of the process is what gives the DAF its name — the donor advises the parent charity on specific gifts to be made. The parent charity does due diligence on the charity you have named, to confirm its status as a legitimate nonprofit organization or purpose. The parent charity also needs to establish that your grant is not being used as payment for anything that will benefit you directly — such as membership dues, pre-existing pledges, or tuition.

If a recommended grant is not approved, the parent charity will inform you of the decision, and the reason for it. In these cases, the parent charity will often help by suggesting related or similar organizations where you might redirect your grant.

The process, A to Z

Step 1 Step 2 Step 3
You select a parent charity and give the necessary initial amount or more) You recommend an investment strategy for the fund Once approved, the parent charity writes a check to
the charity
The parent charity liquidates noncash assets and provides a letter for tax filing You recommend a grant At the end of the giving period, you get a statement
detailing this gift
You name your fund, advisers, and successors The parent charity does due diligence on the charity and makes sure the money is going for charitable purposes If the grant is not approved, the parent will
inform you of the problem and may recommend
a similar charity as an alternative

Keeping track of your gifts

One of the greatest benefits of a DAF is that all of the paperwork and recordkeeping associated with charitable activity is managed by the parent charity. You receive statements, usually on a quarterly and annual basis, that detail the grants that have been made from your fund, as well as any gains earned on your fund’s investments.

Not only does this document consolidate all receipts into one comprehensive statement, but it also can give you a perspective on your charitable giving — providing a snapshot of how much you are giving, and to whom. It’s easier than trying to piece this information together from your checkbook register at year’s end.

How Does A Donor Advised Fund Work? by Inna Rosputnia

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