Giving Vehicles are corporate structures that govern the charitable assets. These giving vehicles differ in how funds are managed, and how donations are disbursed to organizations. In addition to writing cheques from your personal bank account, there are five types of giving vehicles for North American donors.
Types of Giving Vehicles
- Private Foundation – These are charitable structures where the majority of the capital comes from a single source, like a family or family business. The purpose of these structures is to fund other charitable organizations. It is important to note, that we call them PRIVATE foundations, they are not outside of the public domain. Board information as well as past donations are available searchable on government websites.
- Public Foundation – These are charitable structures where the capital comes from multiple sources and the activities may be to fund other charities or to run their own programs/services.
- Community Foundation – These are public foundations that have individual sub-accounts of donors (i.e. the Smith family fund at the Springfield Community Foundation). These entities tend to have a hyper-local approach to funding. They may have limits on how, and by whom assets are managed, as well as the types contributions that can be received and the amounts that can be disbursed.
- Donor Advised Funds – These are public foundations, not unlike Community Foundations, but instead of being hyper-local, they have a broad mandate to allow donors to give to any registered charity. Some also have the ability to work with other funders and organizations to enter into collaborative funding models. In the case with DAFs, the donor advises on where to direct the funds, but ultimately the Board of Directors of the DAF have the final approval.
- Venture Philanthropy Funds – These giving vehicles pool assets from multiple sources with the sole purpose to invest in social purpose businesses and non-profit social enterprises. The investments can be in the form of grants, debt financing, or equity.
In all of the examples above, except for number five, contributions are irrevocable.
Questions to ask BEFORE opening a DAF account
What are the benefits of a Donor Advised Fund?
Conducting charitable giving activities through a donor-advised fund (DAF) is a well-established approach for individuals, families, groups, organizations, and companies that want to:
- Raise funds for specific campaigns from a targeted demographic
- An immediate tax deduction upon donation into the DAF. This deduction is given even if the money is not distributed to qualified donees until subsequent years;
- Consolidate and simplify donations through a charitable giving account that provides flexibility, administrative convenience, cost savings, and tax advantages;
- Donor remains anonymous or determines recognition for donations made through the DAF;
- Take some extra time to make philanthropic decisions.
What types of funds are held in DAFs?
Each institution that is manages the DAF has their own rules around the types of donations they will accept. This is typically published in a Gift Acceptance Policy. For the most part, accepted donations are cash, publicly traded securities (stocks) and some types of insurance policies. There are some DAFs that can also accept unusual or non-cash donations like art collections and land, but it is up to the donor to do the due diligence on the organization.
What are the types of accounts that are held in a DAF?
Most DAFs have three types of accounts: Flow-through accounts, Endowment accounts and Agency accounts. The rules governing each of these accounts differ because of the length of time that the financial assets remain under management of the foundation. They also vary from institution to institution.
Does culture of the firm matter on how the DAF will be governed?
Donor Advised Funds are typically managed by wealth firms like banks or boutique management firms. The umbrella foundation is called a sponsoring organization, which must be a public charity. Because the donor is an account holder, they have advisory privileges on the distribution of funds however the investment policies and the ability to refuse where to direct a donation is up to the Board of Directors of the public foundation (hence the term Donor Advised) which are members of the management firm. So the culture of the management firm will permeate the governance of the DAF. As Peter Drucker once said, “Culture eats strategy for breakfast,” so donors should consider the cultural alignment between themselves and those managing their money.
What are the restrictions around disbursements?
The federal government sets the minimums that a foundation must disburse each year. The individual foundations can set the ceiling. When opening up an account make sure you ask about what these amounts are. It is also important to find out how frequently you are able to disburse from your account. Some are very flexible (within days of your request) others are more structured with set times each quarter or annually.
Anything else we should know?
The one thing that catches donors off-guard are the fees. Every firm has a different fee schedule. These costs typically cover the overall management of the assets, disbursement and tracking of the donation and annual review. Some DAFs offer additional services, like charity vetting and special project design. They may also provide family philanthropy education and coordinate the family fund meetings and charity site visits. We recommend you ask about bespoke services offered as part of your account management fees.