horizontal rule

What is a Donor Advised Fund?

A donor advised fund (“DAF”) is a fund held by a public charity, such as Tides Foundation, from which the donor or fund advisor (the person who is appointed by the donor to recommend grants out of the DAF) may recommend charitable distributions.  

There are three immediate benefits to opening a DAF:

  • Contributions to a DAF – including gifts of cash, appreciated stock, real property and other assets – are immediately tax-deductible to the extent permitted by law.
  • The names of individual donors can be kept confidential if desired,
  • There is no independent tax return required for DAFs.

Recent Legal Definition
The term "donor advised fund" has been used to refer to a variety of funds for many years. In August 2006 the Pension Protection Act (commonly known as H.R. 4) provided the first definition of a DAF for tax purposes. Under the new legislation, a DAF is defined as a fund or account to which all of the following conditions apply:

  • A donor, or a person appointed or designated by the donor, has, or reasonably expects to have, advisory privileges with respect to distributions or investments;
  • The fund is separately identified by reference to contributions of a donor or donors;
  • The fund is NOT described in any of the following exceptions:
    • Single Entity Funds: A fund or account that makes distributions only to a single identified organization or governmental entity.
    • Scholarship Funds: A scholarship fund operated in accordance with specific criteria.
    • Independent Committee Funds: A fund advised by a committee not directly or indirectly controlled by a donor, fund advisor or person related to a donor or fund advisor.
    • Exempted Funds: A fund that the Secretary of the Treasury has determined to be exempt from treatment as a DAF if the fund benefits a single identified charitable purpose.
    • Note: to fall within these last two categories, it appears that a special application to the IRS will be required.

Tides Foundation has policies and procedures in place to ensure that DAFs at Tides Foundation are in compliance with the new rules applicable to DAFs.

Why partner with Tides Foundation, rather than just making a direct donation to the organization of my choice?

There are numerous benefits to maintaining a DAF at Tides Foundation.

Easy to establish
Unlike establishing a private foundation, setting up a DAF is easy, and you generally incur no legal costs, enjoy greater tax benefits, and need not worry about filing institutional tax returns.

Maximum tax benefits
Since Tides Foundation is a public charity, gifts to your donor advised fund are tax- deductible to the extent permitted by law, which generally is greater for a gift to a public charity than for a gift to a private foundation.

Maintain your Privacy
Donors’ privacy is protected and anonymity is ensured if you so desire. When you recommend grants through Tides Foundation, a particular grant recommendation, or all of your giving, can be anonymous.

Focus on Grantmaking
Tides handles all administrative details of the fund, leaving philanthropists free to focus on their values and vision. Our experience and resources provide an innovative and cost-effective framework in which donors may develop and realize their philanthropic goals.

How does a DAF at Tides work?

The basic setup steps for a DAF are as follows:

  • Donor reviews and signs a memorandum of understanding, which sets forth the mutual understanding of the donor and Tides Foundation regarding the DAF.
  • Donor names his or her DAF and contributes cash or other assets to Tides Foundation to fund the DAF.
  • The person who is appointed to recommend grants out of the DAF is called the Fund Advisor. Donors frequently act as their own Fund Advisors; however, if the donor does not plan to act as Fund Advisor, s/he appoints a person or group of people to that role.
  • Fund Advisor and/or Tides Foundation staff identify and recommend potential grantees. Donors and Fund Advisors may participate as actively as they wish in making grant recommendations.
  • Tides Foundation staff conduct background research on recommended grants/grantees.
  • Grants are reviewed by Tides Foundation staff and approved by the Executive Director or the Tides Foundation Board of Directors.
  • Once grants are approved, the Foundation distributes funds to grantees.

How are the funds invested at Tides Foundation?

By law, ultimate responsibility for investment strategy and granting decisions rests with Tides Foundation.  The Foundation, which owns and administers its DAFs, keeps track of all fund activity because each DAF is a part of Tides; DAFs do not, by themselves, have a separate legal existence.
Tides Foundation has a 30 year history of solid financial performance and our investment strategy funds reflect our deep commitment to social responsibility.

DAFs
A donor contributes cash or other assets to Tides Foundation to establish a Donor Advised Fund.  Tides Foundation takes an administrative fee from each contribution, normally 1% for individuals and 1.5% for institutions.  The fee may increase depending on the level of administrative service required for the DAF. The net contribution after the administrative fee allocation remains available from which to make grant recommendations.  DAFs are operable at any scale (i.e., there is no minimum amount that must be contributed to or maintained in the fund).

Invested DAFs
Invested DAFs are a special category of DAFs whose assets are held in a variety of investment vehicles. The bulk of these assets are a diversified portfolio of stocks, bonds, and money market instruments. Tides Foundation’s DAFs are a socially responsible investment, and a proportionate amount of capital gains, dividends, or interest that might accrue are allocated to the DAF. An Invested DAF is required to have 5% of total assets available for distribution (i.e., liquid) each year. Currently, the 5% rule requires only that that amount be available for distribution; in the future legislation may require an actual distribution percentage of fund assets each year. Fees for an Invested DAF are assessed annually and based on the fund asset balances at year-end. Tides charges 1% on a fund’s first $500,000, .75% on the next $500,000, .5% of the next $4 million, and .25% of any amount over $5 million. The minimum amount to establish and maintain an Invested DAF at Tides is $100,000.

Can Tides staff help me in my grantmaking?

Tides Foundation’s expert philanthropic services staff can work with you to translate
your values into highly effective philanthropy. Our menu of philanthropic services
offers a full range of support to assist you in reaching your philanthropic goals.

  • Personalized Dockets
  • Face-to-face Learning Opportunities
  • Values Planning Sessions
  • Landscape Research