A donor-advised fund (DAF) provides a simple, flexible, and tax-efficient way for you to support your favorite charitable causes. As with any financial decision, however, there are several factors to consider when choosing the public charity that sponsors a DAF. Here are five key questions to research when choosing a DAF sponsor:
1. What is the minimum contribution size and grant size?
The larger DAF sponsors allow DAFs to be set up with initial donations of $5,000, while smaller community-based or affinity-based DAFs may have minimums that range from $25,000 to $100,000 or more. You should also consider the minimum allowable grant recommendation size, especially if you want to be able to recommend relatively small grants. Larger DAF sponsors allow grant recommendation minimums of $50, while other DAF sponsors may have grant minimums of $500 or higher.
2. What types of assets can be donated to the charity that sponsors the DAF?
Most DAF sponsors accept cash donations by check, bank wire, or Electronic Funds Transfer. Some of the larger DAF sponsors also accept of a variety of non-cash assets, including:
- Mutual fund shares
- Long-term appreciated securities, including publicly traded stocks and bonds
- Certain restricted, control, or lock-up stock
- Certain complex assets, such as privately held C-corp and S-corp shares
- Private equity and hedge fund interests
- Real estate
- Life insurance policies
If you plan to donate these types of holdings, make sure your DAF sponsor will accept them.
3. How much can I expect to pay in fees?
DAF sponsors typically charge two types of fees: one fee covers administration of the DAF, which includes the cost of running a DAF program, including providing donor support. The DAF’s investments will also incur fees.
On the lower end of the scale, some of the larger DAF sponsors charge administrative fees of 0.60% of the balance within your DAF or $100, whichever amount is greater. Many DAFs offer breakpoint pricing, so that the larger the balance in your DAF, the lower your administrative fee (as a percentage of assets). For example, a DAF might charge an administrative fee of 0.60% on the first $500,000 of assets, 0.30% on the next $500,000 up to $1 million, 0.20% on balances between $1 million and $2.5 million, and so on.
Investment management fees vary depending on the type of investments you choose. Index mutual funds or ETFs may have expense ratios as low as 0.015%. Actively managed mutual funds may have expense ratios of 1% or more.
4. What are the investment options?
While the DAF sponsor controls the DAF’s assets, you are able to recommend how the DAF assets are invested. Most DAF sponsors offer a variety of investment options, ranging from index-tracking investment pools to pools that seek growth, income, or a combination of growth and income. These investment pools may encompass a variety of strategies, including active and passive mutual funds that invest domestically and internationally. One additional variable to consider is whether the DAF sponsor allows you to nominate a financial advisor to manage the DAF's investments.
5. What level of donor service can I expect to receive?
As you size up potential DAF sponsors, consider whether the charity can provide the level of support you need. For example, does the DAF sponsor provide an easy-to-navigate website that allows you to make your donations and grant recommendations online? Is the website designed to work on a mobile device? What are the DAF sponsors’ hours of operation and do they have experienced staff members who can provide guidance?
Donor-advised funds offer a convenient, cost effective way to support your favorite charities, while also providing you with an opportunity to reduce your tax exposure. Before establishing a DAF, do your homework to make sure the sponsoring organization is a good fit with your particular needs.
Next steps to consider
Take a few minutes to learn about the Fidelity Charitable® Giving Account®.
Plan how to include charitable giving as part of your investment portfolio.
See how helping charities can also enhance tax benefits.