11 November 2015
Black Friday is for shopping in the sales. Cyber Monday is the online shopping surge. And have you heard of Giving Tuesday (1 December)? It's a global campaign to encourage is all to donate our time, money or voice to a charitable cause.

You may dismiss such campaigns an American fad and we are British, but we've just had Halloween and you can see how these fads gain popularity.

This week the National Philathropic Trust (my organisation) produced its annual review of American's charitable habits. And the good news is that it is on the rise.

Not to be outdone, I'm sure the UK has similar trends. What's interesting in the U.S. is that people are being given the new ways; a more structured and strategic approach than the janitorial random cheques to a variety of causes. One vehicle that has made this possible is the popularity of a Donor Advised Fund (DAF). It's basically a charity savings account which acts like a foundation or trust - but you don't have to be a multi-millionaire to have one.

It's the fastest growing "giving" vehicle in the U.S. - and it popularity was possibly heightened when Mark Zuckerberg put $1 billion into one last year. We (NPT) are the largest independent provider of donor advised funds in the U.S. and we set up in London just over a year ago. Many people, wealth and tax advisers included, don't know much about these accounts but as the profile increases, I fully expect to see DAFs to see similar popularity and growth because they are tax efficient, easy to set up and inexpensive to manage.

Tax lawyers, accountants, and wealth managers all have a key role to play in helping clients find the best philanthropic vehicle for their needs.  Many people do not expect advsiors to be experts on philanthropy but to connect them to experts and solutions.  So here is a quick guide to DAFs for you or your client....
DAF versus Foundation.

Clients can open a DAF account in a day versus months if setting up their own Foundation or Charitable Trust.  They choose the name of their DAF account, such as the Smith Family Foundation or The Environmental Charitable Fund. Clients then donate personal assets (cash, shares, property are common) to their DAF account and receive tax relief at the point when the assets are donated to their DAF account.  Balances in the DAF account can be invested for growth.  And when they are ready, donors recommend grants from their DAF accounts to charities in the UK or abroad.  So, donor-advised funds provide the functionality of having your own foundation or charitable trust with none of the administrative hassle and overhead.
By making giving easy, donor-advised funds help donors give more.
In the US, clients now more often open a donor-advised fund rather than setting up their own foundation.  Donor-advised funds now outnumber private foIn the US, clients now more often open a donor-advised fund rather than setting up their own foundation.  Donor-advised funds now outnumber private foundations by almost 3 to 1. There is currently over $70 billion in donor-advised funds in the US.  Assets in donor-advised funds grew by over 23% last year, continuing a trajectory of double digit growth that began in 2010.
The vast majority of private clients have relatively similar needs on both sides of the Atlantic when it comes to giving – convenience and tax-efficiency.  Demand is growing in the UK because DAFs meet these needs.
Separate Tax Planning from Charitable Planning.

When you make a contribution to a DAF, you receive immediate tax relief.  Your DAF account benefits from a 25% Gift Aid reclaim on eligible cash contributions and you may claim tax relief for a portion of your contribution on your Self Assessment tax return.  The key is that you can make contributions before you have decided which charity will ultimately receive the funds.  You have time to decide where to send the charitable contribution.
Because you receive immediate tax relief on your contributions to a DAF, they are often the preferred philanthropic vehicle following a big liquidity event, like an IPO, selling a business, or receiving an inheritance.  The flexibility and convenience of DAFs make it easy to manage a windfall in the most tax effective way.  
Donate shares not cash - avoid CGT.

For those with appreciated shares in the their investment portfolios, it can be much more effective from a tax perspective to donate appreciated shares rather than cash. When you contribute appreciated shares to a DAF, you receive tax relief on the full market value of the shares on your Self Assessment tax return.  By donating the shares, you also do not have to pay capital gains tax. Donors can effectively make more generous charitable gifts because the charity receives the amount that would otherwise go to taxes.  In other words, DAFs allow you to unlock assets, like shares, for charitable good.

Pursue Investment Growth Opportunities.

DAFs typically offer a variety of investment options. By investing the balance in your DAF account, you will ultimately have more to give away to charities in the future.  
At the end of the day, giving is about discovering what is most meaningful to you and translating that into action.  Donor-advised funds are a tool to help people (clients) turn their ideas on how to make the world a better place into action.

John Canady is CEO of the charity National Philanthropic Trust UK (  NPT-UK is affiliated with National Philanthropic Trust, the largest independent provider of donor-advised funds in the United States.