What Are Donor-Advised Funds (DAFs)?

Last updated on August 16, 2024

If you are looking to give to a charitable cause but do not know which mode to opt for, this article is for you.

As Singapore becomes increasingly progressive, many individuals are coming forward to give to others in our society. Traditionally, this has been done by setting up a charity (which also includes charitable purpose trusts). However, a charity is not the only means through which you can donate your funds to a cause. Donor-Advised Funds (DAFs) are now an option which donors can consider.

This article will guide you on what DAFs are and how you can go about starting a DAF. It will cover:

What Exactly is a Donor-Advised Fund?

A DAF is a professionally managed charitable giving vehicle that allows donors to give to a range of charitable causes. Simply put, your donation will be used to establish a fund/DAF account which will be administered and managed by a sponsoring organisation – these can be financial institutions, a community foundation (such as the Community Foundation of Singapore), a university, or any non-profit organisation.

As the donor, you will advise on the disbursement of the funds in the account, although the sponsoring organisation can also recommend specific charities based on their on-the-ground expertise and your preferred charities. The sponsoring organisation will then make the disbursements to the selected charities.

DAFs can be set up by an individual, a family, a company, a beneficiary of a will, a trust or a family office.

Who Decides to Disburse the Monies in a Donor-Advised Fund?

The name ‘donor-advised fund’ comes about because as the donor, you will ‘advise’ the sponsor on the recipient (though the sponsor may also recommend specific charities, as mentioned above) as well as the quantity and frequency of the disbursements. While you have this advisory privilege, you must note that once you transfer your funds into the DAF account, the sponsoring organisation would legally own the assets. In other words, your sponsor now legally owns the funds and has the sole authority to accept or reject your recommendations. In practice, however, it is usually the case that the donor has a considerable say in the disbursements.

What is the Difference Between Donating to a Donor-Advised Fund and Donating to a Charity/Charitable Organisation?

The main difference is the role that you, as the donor, will play.

Let’s take the Community Chest, the fundraising and engagement arm of the National Council of Social Service, for example. When you donate to the Community Chest, it will disburse the funds to the social service agencies and organisations it serves in support of five causes. These are adults with disabilities, children with special needs and youths at risk, families in need of assistance, persons with mental health conditions, and seniors in need of support. You are not able to specifically choose a cause when you make a donation. Once the money is donated, the Community Chest will manage the money as it deems fit.

On the other hand, in a DAF, you will be actively engaging with the sponsor in distributing the funds. By working together with the sponsor, you have the benefit of being guided by the sponsor. The sponsor, based on their knowledge and expertise on community needs, the profiles of the target group and the general disbursement process, is well-placed to guide you on how best to realise your donations. Compared to making a donation to the Community Chest, there is a greater degree of flexibility and diversity in terms of the causes that you can nominate to support.

To illustrate: Tom, a donor, makes a donation of S$200,000 to a DAF established with organisation ABC. Tom, who is keen on supporting causes related to persons with disabilities, suggests disbursing S$10,000 to charity X. However, organisation ABC having done its due diligence, recommends disbursing the S$10,000 to charity Y which is more in need of support. Tom finds the recommendation to be useful and is happy with the recommendation. Organisation ABC disburses the S$10,000 to charity Y.

What is the Difference Between a Donor-Advised Fund and Setting Up a Charity?

Setting up a DAF involves transferring your funds to a sponsor who will manage the funds for you.

Setting up a charity involves setting up an entity exclusively for charitable purposes. Your entity needs to carry out public-benefitting activities that support its charity goals. You are also required to meet other legally prescribed conditions set out under the Charities Act and Regulations, which lay out rules on registration, deregistration, accounts and fundraising. Click here for more information about charities.

The following table summarises the differences between a DAF and a charity:

	DAF	Charity
Start-up time	Immediate	A few weeks to months
Start-up cost (includes cost of incorporation, registration fees, staffing costs and legal fees for paperwork)	None	There are high legal fees to be paid to wealth planners and lawyers. Further, there are costs of setting up the board and recruiting staff with the expertise to manage the charity. Note: A lawyer will offer legal advice including ensuring compliance with charity laws and assisting with any paperwork including any agreements you need to sign. A wealth planner will assist you in setting financial objectives, ensure the financial stability of your charity, and advise on navigating economic markets.
Administrative costs	Low (The sponsor takes charge of the administrative tasks which include keeping a record, distributing the grant and complying with the legal requirements. There may be some administrative costs, however, such as support fees.)	High
Resources required	Low	High
Control	Moderate	High
Administrative responsibilities	Low	High
Privacy	High (donations can be done anonymously or you can choose to disclose your identity as well)	Generally required to disclose the grant details
Expertise	Since a DAF works by pairing you with a sponsorship organisation that has the expertise on charitable disbursements, target group and community needs, you will have easy and high access to such expertise.	You may or may not have access to expertise when you set up a charity. This may depend on your ability to source contacts who can assist you with the process.

Overall, if you’re looking to participate in charitable giving with little waiting time, minimal to no costs, and with far fewer legal rules, it would be wise to opt for a DAF. If on the other hand, you have the expertise it takes and would like full control over the fund, you may consider setting up a charity, considering the legal fees.

What are the Different Types of Donor-Advised Funds?

There are 3 types of DAFs:

	Flow-through Fund	Endowment Fund	Investible flow-through Fund
Purpose	You want to make an immediate impact.	You would like to support a charity on a long-term basis. Also useful for scholarships.	You want to make an immediate impact and ensure its continuity.
Frequency of your donations	Consistent over time	NA (fund lasts forever)	NA
Are the funds invested?	May or may not be	Yes (Principle is untouched, returns are used to support the causes of the donor)	Yes

What are the Institutions That Currently Offer Donor-Advised Fund Services in Singapore?

The following are institutions that currently offer DAF services in Singapore:

Community Foundation of Singapore (CFS): Founded in 2008, CFS has a network of over 400 charity partners, works closely with the Ministry of Culture, Community and Youth and partners with financial institutions. It focuses on strategic philanthropy in Singapore. CFS collaborates with numerous charities to curate programmes addressing various causes. Concurrently, CFS’s team of grant making analysts identifies and evaluates critical impact opportunities through a thorough analysis of on-the-ground needs and gaps. Focus areas include, but are not limited to, accessible quality education, improving employability, mental wellbeing, ageing well, and climate & environment.
SymAsia Foundation: Founded in 2010, SymAsia Foundation offers strategic opportunities for donors. Focus areas include but are not limited to education, humanitarian and social development, culture and the arts, and heritage, health and sports, and nature and environment.
UBS Singapore Donor Advised Fund: Founded in 2022, UBS has a global DAF network which it utilises to best realise donor’s philanthropic efforts globally. It has access to a global expert’s pool and a cross-disciplinary team. Donors can also tap on UBS Optimus Foundation, a reputed grant-making foundation. Through UBS, donors can give outside Singapore as well.
Asia Community Foundation (ACF): Founded in 2022, ACF has an extensive network of partners in Asia. You can donate in Singapore and Asia. Its philanthropy advisors assist with ideating a giving strategy.

What is the Minimum Donation Sum Required to Start a Donor-Advised Fund?

The donation sum required to set up a DAF differs by institution:

Community Foundation of Singapore: S$200,000
SymAsia Foundation: S$1M
UBS Singapore Donor Advised Fund: US$50,000
Asia Foundation Singapore: S$1M over 5 years

For most of the general population, you would likely be able to only access the services of the Community Foundation of Singapore and Asia Foundation Singapore unless you are a Credit Suisse client (you can access SymAsia Foundation) or UBS client (you can access UBS Singapore Donor Advised Fund).

What is the Entire Donor-Advised Fund Process Like?

The flowchart below provides an overview of the DAF process:

Do note that the specific steps may differ with each organisation.

For example, if you approach the Community Foundation of Singapore, you will first have to notify them of what you intend for the DAF and finalise your fund details. This will include detailing the fund type, fund name, pledge amount, period, and charitable focus. Following this, the Community Foundation of Singapore will prepare a draft deed for you to approve. On approval, you and a witness (that you have nominated) will sign the deed and execute it. Finally, you can activate your DAF account by making a donation via a bank transfer. You can then start recommending grants.

What are the Benefits and Drawbacks of Donor-Advised Funds?

You may have realised by now that while DAFs have their benefits, there are also some drawbacks to note. Hence, it is important to consider the full list of pros and cons before making an informed decision on whether you wish to start a DAF.

Benefits of DAFs:

Greater satisfaction: You, as the donor, will play a bigger role in the giving process compared to donating to a charity. This is because in a DAF, you will be constantly advising your sponsor on the recipients (i.e. beneficiaries), quantity and frequency of the disbursements. As such, you have a greater say in how the disbursements are utilised. Whereas, for a charity, once you make a donation, the decisions are solely made by the charity without your input.
Expertise: The sponsor(s) know the ins and outs of the target communities, and you can be rest assured that the funds are properly directed.
Flexible contributions: The contributions to DAFs are not restricted to cash but include shares and other assets. However, this is not applicable to Asia Foundation of Singapore, which only accepts cash contributions.
Tax benefits: Your donation will be eligible for tax benefits upfront if your sponsor organisation has an Institution of Public Character (IPC) status, and the tax deductions are subject to the Inland Revenue Authority of Singapore’s (IRAS) regulations.
A tool for legacy giving: Utilising DAFs for legacy giving allows you to gradually distribute your gift over time. For example, you can name your DAF account as the charitable beneficiary under your will, which a portion of your estate will go to.

Drawbacks of the DAF:

Minimum initial donation requirements: DAFs have minimum donation requirements as stipulated above.
Limited control: While you can recommend grants, the sponsor has the final say on whether to approve them. This means you may not always have full control over the disbursement of your funds.
Potential lack of immediate impact: It is possible that contributions to a DAF can sit in the fund for a while before being disbursed to charities.
Lack of transparency: DAFs are not required to disclose detailed information about their grants and operations, leading to less transparency in how the funds are used.
Complexity of some grant recommendations: For donors interested in supporting smaller or lesser-known charities, the process of recommending grants can be more complicated, as the sponsoring organisation must first verify the charity’s eligibility.

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In essence, a DAF enables a professional third-party organisation to manage your fund for the causes you support. The organisation will use their expertise to recommend causes. This structure not only simplifies the administrative burden of giving but also enables donors to support their preferred causes thoughtfully and systematically. Setting up a DAF is a charitable giving option which you may consider if your requirements align with its process and structure. Its tax benefits, flexibility in grant-making which allows you to make grant recommendations at any time, cost-effectiveness and simplicity are some of its compelling benefits.

It is important to identify what works best for you. In doing so, you may consider thinking of a giving strategy as you start planning and structuring your funds for a charitable cause. It is highly recommended that you plan your giving process. For a start, you may wish to think about the costs, resources, time, control of the fund, expertise, and tax considerations in the giving process. Are you comfortable with the legal ownership of assets being transferred from you to the sponsor? Are you comfortable with the possibility of your request not being fulfilled (in this scenario, it is likely that the sponsor has more expertise and is advising you to direct your funds where they most properly meet the needs of the community)? If you are, you can consider a DAF more closely.

You can contact the organisations directly for more information. You may also seek the assistance of an estate planning lawyer who will be able to advise you on the different modes of giving, their respective pros and cons, and assess their suitability to your assets and intentions. This will enable you to make a more informed decision.