Donation Agreement Foundations: All You Need to Know

A donation agreement foundation or DAF is a form of philanthropy where donors set up a charitable fund that distributes money to various non-profit organizations. DAFs are a popular way to support charitable causes because they offer tax benefits and allow donors to support multiple charities with a single donation.

How DAFs Work

In a DAF, a donor contributes money or other assets to a charitable fund, which is managed by a sponsoring organization. The donor then recommends how the money should be granted to various charities. The sponsoring organization reviews the recommendations to ensure that the charities meet their grantmaking guidelines, and then distributes the funds accordingly.

Benefits of DAFs

One of the major benefits of setting up a DAF is tax savings. When a donor contributes cash or other assets to a DAF, they receive an immediate tax deduction for the full amount of the donation. This can be especially beneficial for donors who have a high income or who have a significant amount of assets that they would like to transfer to a charitable cause.

In addition to tax savings, DAFs offer donors a convenient way to support multiple charities with a single donation. Donors can make contributions to their DAF at any time, and then recommend how the money should be distributed to various charities throughout the year.

Creating a Donation Agreement Foundation

Setting up a DAF is a simple process that typically involves the following steps:

1. Choose a sponsoring organization – The first step in setting up a DAF is to choose a sponsoring organization that will manage the charitable fund. There are many organizations that offer DAF services, including community foundations and national charities.

2. Make a donation – Once a sponsoring organization has been chosen, the donor will need to make a donation to the DAF. This can be done with cash, stock, or other assets.

3. Recommend grants – After the donation has been made, the donor can start recommending grants to various charities. The sponsoring organization will review the recommendations to ensure that the charities meet their grantmaking guidelines, and then distribute the funds accordingly.

Conclusion

Donation agreement foundations are a popular way to support charitable causes because they offer tax benefits, convenience, and a way to support multiple charities with a single donation. If you are interested in setting up a DAF, it is best to work with a financial advisor or attorney who is experienced in philanthropy and can guide you through the process.