A Donor-Advised Fund (DAF) is a charitable giving vehicle set up under the tax umbrella of a public charity, which acts as the “sponsor” to many funds. A DAF offers the opportunity to create a vehicle for charitable giving as an alternative to direct giving or creating a private foundation. Donors generally benefit from administrative convenience, cost savings and tax advantages by conducting their grant-making through a DAF as opposed to a private foundation.
Because a DAF is housed in a public charity, donors receive the maximum tax deduction available, while avoiding excise taxes and other restrictions imposed on private foundations. Further, donors do not incur the costs of establishing and administering a private foundation, including staffing and legal fees. Most public charities that offer donor advised funds will only make grants from these funds to other public charities, and will usually perform due diligence to verify the grantee's tax-exempt status.
The charity administering the fund gains full control over the contribution. As such, it is not legally bound to the donor, but makes grants to other public charities upon the donor's recommendation. This structure takes a certain amount of the control over the charitable contributions away from the donor that the donor experiences with direct giving or giving through a private foundation.