What You Need to Know About Donor-advised Funds and Charities
Lately, there has been an increase in public interest in donor-advised funds (DAFs). In a nutshell, these are funds or accounts set up with a public charity. Generally, this is how a DAF works:
A donor opens an account or fund at a public charity.
The donor then donates to the fund and receives a tax-deduction.
With their advisory rights, the donor can recommend (or advise) the fund to make grants to qualified public charities.
With the rise of DAFs, has come a sea of questions. One of the many questions, is:
What is the difference between a donor-advised fund and a public charity?
Simply put, a donor-advised fund is run by a public charity. However, there are 3 different types of public charities that run DAFs. Typically, these organizations are usually called sponsoring organizations. Overall, there are 3 types of sponsoring organizations:
While similar, there is a key difference that set these organizations apart. That difference is focus. Though this may seem of little consequence, the focus will affect the scope your of impact. With this in mind, here are the three different types of sponsors.
Definition: An independent charity with a national fundraising and/or grant making program that supports many causes.
Examples of National Charities: Legacy Global Foundation, Fidelity Charitable Giving Fund
Focus: Set geographic area
Definition: An organization dedicated to providing charitable support to residents in a specific area i.e. town/city, county, or state.
Examples of Community Foundations: Arizona Community Foundation
Focus: Specific cause
Definition: An organization dedicated to a single area of focus i.e. social issues, medical issues, environmental issues etc.
Examples of Single-Issue Charities: Girls Who Code, American Cancer Society, Nature Conservancy
So, what is the difference between a donor-advised fund and a public charity? In summary, they are a part of a public charity. They are not separate organizations. Rather, donor-advised funds are sponsored or run by public charities. Remember, the primary difference between DAF sponsors is their focus. Even though the focus varies between DAF sponsors, DAFs are valuable charitable tools. Used correctly, they can create lasting impact.
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