Donor Advised Funds (DAF) 101

An introduction to Donor Advised Funds

1. Introduction

You want to do something good for the planet, but you’re not sure if you have enough money to make your donation valuable. Or maybe you have a decent amount of disposable income but don’t know where it should go to have the most impact. Regardless of your circumstances, a no-minimum Donor Advised Fund (DAF) like the one EarthShare provides is a fantastic option for individuals interested in supporting a healthier planet, no matter what your income may be.

But let’s take a few steps back. What is a DAF, and how can it be used to better the environment and our climate?

We’ve created this DAF 101 to help you understand how donor advised funds work, the opportunities they can provide, and what makes the EarthShare DAF unique. Whether you’re brand new to the concept of DAFs (that’s totally fine, most people are) or you’re simply looking for a way to increase your social and environmental impact with every donation you make, this resource is for you.

Let’s get started!

2. What Is a DAF?

A DAF is a charitable investment account that provides important financial benefits to you, the user, while enabling you to support the nonprofits and charitable organizations that are most important to you.

A DAF allows you to contribute to an account designed specifically for charitable purposes. When you add money into your account, you receive an immediate tax deduction, even if the donation hasn’t been designated to go to a specific charity. While the money is in your account, you can invest it, earning interest until the time at which you choose to grant it to the nonprofit(s) of your choice. It’s important to note that money cannot be withdrawn from your DAF. The only way to move money out of your account is to grant it to a nonprofit.

To date, DAFs have a reputation for being “only for the uber-wealthy.” Many of the largest donor advised funds in the United States, such as Fidelity Charitable, Schwab Charitable, and Vanguard Charitable, focus on larger accounts of $100,000 or more. But some DAF sponsors, like EarthShare, have no-minimum programs, which means that you can fund your DAF with whatever amount of money you can afford—even if it’s just $1. We believe that anyone interested in increasing how much they’re able to donate should be able to benefit from a DAF.

Today, DAFs are the fastest-growing charitable giving method in the country, with contributions growing 27% from 2019 to 2021 and equaling an estimated $34 billion in dedicated grants. These contributions now represent more than 3% of all U.S. philanthropic giving.

3. Why Use a DAF?

4. DAF Investment Options

5. Frequently Asked Questions

Are DAFs refundable?

No, DAFs are not refundable. Because money you put into a DAF is immediately tax-deductible, all donations are final.

What restrictions are associated with DAFS?

DAF assets can only be granted to IRS-qualified 501(c)(3) organizations. Non-501(c)(3) organizations such as political groups, crowdfunding campaigns, and private foundations are ineligible to receive grants. Also, grants cannot result in a personal benefit, such as memberships or tickets to charity events.

How will I receive my DAF receipts?

When using EarthShare’s DAF, all your receipts will be available 24/7 on the EarthShare Platform. You will receive a new receipt any time you fund your account. Because any money you put in your DAF is instantly tax-deductible, these are the receipts you’ll need for tax purposes. (NOTE: Unlike traditional methods of giving, you won’t receive an additional tax receipt upon granting the money to a nonprofit because the tax-deduction occurred when you funded your DAF account, but you will receive confirmation that your funds have been allocated to the nonprofit of your choice when you choose to make a distribution.)

How do DAFs differ from private foundations?

DAFs and private foundations are both charitable vehicles that help donors facilitate giving. However, unlike DAFs, private foundations are separate legal entities, usually established by an individual, family, or corporation. Private foundations must follow more stringent tax laws and regulations than public charities and are responsible for their own tax filing and recordkeeping. (Basically, they’re responsible for all the paperwork.) Private foundations are typically more work, but provide greater administrative control over assets and grantmaking, including the ability to make grants to organizations that are not IRS-qualified 501(c)(3)s.

Are there drawbacks to having a DAF?

Donors should know that DAF sponsors can profit from the donations they receive via the fees that they charge. For example, Fidelity Charitable charges the greater of $100 or 0.6% for the first $500,000 of donations to its fund. It can also make additional money from the charges that are assessed by the mutual funds in which donors invest. Choosing a mission aligned DAF with transparent policies is extremely important.

What are the biggest criticisms of DAFs?

Possibly the biggest criticism of DAFs and DAF-sponsoring organizations is the low payout rate (and the general stagnation) of DAF accounts. In some cases, they’ve even been labeled vaults for the rich—a place to keep money without being forced to designate it to charity; it’s a considerable problem and one EarthShare seeks to correct. The EarthShare DAF is specifically focused on amplifying impact and, as a result, we have a payout policy in place to make sure money cannot rest in a DAF account indefinitely. The money will be used to invest in the future of our planet.

6. EarthShare’s DAF and How to Get Started

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