The fraction of wealthy Canadians has increased significantly in the last several years. Nearly 22 million Canadians had a net worth of $1 million or more by the end of 2020, according to the Credit Suisse Research Institute Global Wealth Report 2021, issued in June. Charity is the #1 interest, passion, or activity for North Canadians with high net worth, according to Wealth-Very X’s High Net Worth Handbook 2021.

Donor-advised funds in Canada (DAFs) are becoming increasingly popular as a way for people to support their philanthropic endeavours. According to the National Philanthropic Trust’s 2021 DAF Report, Canadian investors used DAFs to donate $34,67 billion to charitable causes in 2020, a 27% increase over 2019.

Donor-Advised Funds (DAFs): What Are They?

Donor-Advised Funds (DAFs) are philanthropic funds that may accept significant contributions. If you donate to a charity, a third-party organisation will manage your funds.

Although DAFS has been widely accepted, they have also faced some criticism about how they operate and their advantages to society. Let’s look at DAFs, including their advantages and disadvantages.

How does it all go down as a donor-advised fund (DAF)?

Donor-Advised Funds in Canada (DAFs), 501(c)(3) nonprofit organisations, can accept cash, securities that have risen in value, and other assets as their funding sources. DAF sponsors hold all donations in a special account in the donor’s name, which is then transferred to the charity of the donor’s choice for final distribution.

Contributions to the fund are now tax-deductible for donors. Because of this, donors can claim a tax deduction for all donations when they are made, even if the money isn’t given to a charity for months or even years. To get a deduction on their taxes, donors who want to make a gift can do so now and then pick where the money goes later.

Many people will be able to donate more if this option is available to them. An Amazon.com Inc. donor, for example, can donate 1,000 shares of the company to a DAF and immediately deduct the full amount of the contribution, subject to IRS restrictions.

To contribute the money to a local homeless shelter, the donor would have to sell shares, pay capital gains tax, and give it to the charity.

Donor-Advised Funds have several advantages (DAFs)

Donations to a DAF can be made now and immediately deducted from your taxable income while you select how the funds will be utilised in the future. If you haven’t made up your mind about contributing, there is still time to grow your money tax-free in a donor-advised fund (DAF).

For the most part, a DAF should not be utilised to store large sums of money. National Philanthropic Trust’s 2021 Report shows that DAFs have more than doubled the money they have handed out since 2011. They donated $34.67 billion in 2020.

In addition, there are advantages to working with a financial advisor. Fidelity Philanthropic conducted a 2020 research. The results showed that financial advisers who include charitable planning into their practice might reap considerable benefits. Compared to advisers who don’t include it, their assets were six times more, their organic growth was three times as large, and their new money per investor was 1.3 times as large as the median.

According to the same research, 76% of the customers donated valued assets, and 68% utilised them to allow them time to determine where they wanted to donate.