Using donor-advised funds for philanthropy

An efficient way to use tax credits

There are many reasons and many ways to give. Charitable giving is a very personal choice – including which charity to benefit, the purpose and objective of the gift, the source of the gift, the timing of the gift, and even the vehicle to carry out the gift. Every philanthropist is unique and will have an individual way of giving. This blog will look at one method of giving – donor-advised funds. For additional reading on the topic of giving, check out our advisory, “Charitable Giving.”

A donor-advised fund (commonly referred to as a “DAF”) is a fund established with a public foundation. The public foundation is comprised of DAFs from multiple donors. A donor can contribute to an existing DAF or establish his or her own. It is possible to set up a DAF with a community foundation, at many financial institutions, hospitals, and other major charities, or with an independent public foundation.

Below are the highlights.

The advantages of DAFs

• The public foundation is responsible for the administration, investment, and maintenance of the various DAFs. It handles all Canada Revenue Agency reporting and the donor does not have any direct tax compliance obligations.
   
• The donor can choose to be as involved as he or she desires and the level of involvement of family members.
   
• DAFs can be opened and set up relatively quickly.
   
• It’s a way to make a gift to utilize tax credits without needing to make decisions at the time regarding how to direct a gift. For example, in the context of year-end tax planning. As well, timing with a large taxable event, such as selling a company. Charitable giving can be used as part of an overall tax planning strategy. By setting up or contributing to a DAF, you don’t need to make an immediate decision on how to direct funds. The funds can be contributed to the DAF, you get a tax receipt at that time, and then you can decide how to direct the funds from the DAF at your leisure.
   
• Privacy! Donor and financial information is not disclosed or made public.

There are also advantages depending on where the DAF is set up.

For example, many community foundations, since they are dedicated to philanthropy in a certain geographic area or for a certain community, can provide information and research to understand how best to address need. These internal resources can be invaluable to individuals who want to give but don’t necessarily know how.

At a financial institution, for example, a person’s investment advisor can facilitate setting up a DAF. Once the DAF is set up, it can be managed by the investment advisor together with the donor’s other investment accounts. If you bank online, you can see the account for your DAF together with your other bank and investment accounts.

The disadvantages of DAFs

• The donor can advise on the charities that he or she wishes to support, but the public foundation has the ultimate control over the distribution of funds.
   
• Annual administration fees.

DAFs can be set up during lifetime, continue after death, and be part of your estate plan. They are a valuable option to consider when thinking about philanthropy.

Check out my previous blog where I compared private foundations and public foundations, “Battle of the Foundations.”

For additional reading on private foundations, check out our Advisory, “Charitable Giving Through a Private Foundation.”

Marly Peikes is a partner at O’Sullivan Estate Lawyers. Her practice includes all aspects of estate and trust planning, estate administration and estate dispute resolution. Marly focuses on assisting clients in organizing their financial affairs during their lifetime through creative estate planning strategies which balance each client’s unique needs with corresponding estate administration tax and income tax considerations, all while ensuring that each client’s objectives are achieved and optimized. This article originally appeared in the O’Sullivan Estate Lawyers blog. Used with permission.

Notes and Disclaimer

Content © 2025 by O’Sullivan Estate Lawyers LLP. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited. Used with permission.

This article is the opinion of the writer and is meant to be general in nature, limited to the law of Ontario, Canada. It is not intended to provide specific personalized advice on any individual situation, including, without limitation, investment, financial, legal, accounting or tax advice. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your particular circumstances.

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