October 3, 2022
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Finance

Donor-Advised Funds for Canadians: What You Should Know

Giving away money to charity is a great thing to do, but it can also be challenging to decide where your funds will go. So, there are several reasons why Donor Advised Funds have become so popular:

  • They offer donors a way to simplify their giving by consolidating their charitable donations into one account.
  • Donors can receive an immediate tax receipt for their contribution, even if they don’t recommend a grant to a charity until later.
  • DAFs give donors flexibility and control over how their money is used to support charitable causes.

According to reports, donor-advised funds in Canada (DAFs) are the fastest-growing type of giving vehicle in the country. In 2017, donor-advised funds in Canada held $9.1 billion in assets and granted $2.7 billion to Canadian charities. So, if you’re considering setting up a DAF, there are a few things you should know:

  • You’ll need to choose a sponsoring organization, such as a community foundation or a financial institution, that will administer your fund.
  • You’ll need to actively decide how much money you want to contribute to your fund.
  • You’ll need to decide what purpose you want your fund to serve.

How Can a Donor-Advised Fund Benefit Canadians?

A donor-advised fund is essentially a giving account that allows donors to make charitable contributions and recommend grants to eligible charities. As such, it can be an attractive option for Canadians looking to make a difference with their charitable giving. Besides, there are indeed many benefits to setting up a donor-advised fund, including the ability to:

  • Get advice from professionals on how best to allocate your donations.
  • Build a philanthropic legacy by involving family members in your giving decisions.

How Do They Work in Canada?

Donor-advised funds are an excellent way for Canadians to give back to their favorite charities. They work by allowing donors to contribute to a fund, which is then used to support the charity of their choice. Meanwhile, many different donor-advised funds are available in Canada, so it’s essential to do your research before deciding. You’ll want to consider how the fund is managed, its associated fees, and what sorts of charities it supports.

Donor-advised funds can indeed be a great way to maximize your charitable giving. So, by researching and choosing the right fund for you, you can ensure that your donation makes the most significant impact possible.

Who Should Consider a Donor-Advised Fund?

If you are actively looking for a way to have more control over your charitable giving, and want to indeed ensure that your money goes to the causes you care about, then a donor-advised fund may essentially be right for you. This type of giving vehicle can be especially beneficial for those who want to give regularly or set up a giving plan for the future. It can also be a good option if you want to consolidate your charitable giving into one place. This can indeed make it easier to keep track of your donations and ensure that they are being used in the way you intended.

Finally, if you are interested in leaving a lasting legacy, a donor-advised fund can be a great way to do this. By setting up a fund that will continue after your death, you can ensure that your charitable giving will have an impact long into the future.

Why It’s Worth Meeting With Your Financial Advisor Before You Donate

Before you donate through donor-advised funds in Canada, it’s worth meeting with your financial advisor to discuss the best option for you. They can help you understand the benefits and drawbacks of using a donor-advised fund and how it might impact your overall financial strategy.

A few costs to consider when setting up a donor-advised fund are generally quite reasonable. There may also be an annual administration fee, typically a percentage of the assets in your fund (usually between 0.5% and 1%).