What are Donor Advised Funds?
By Vicky Moore, Head of Development
Some of the funds we support at Foundation Scotland are called Donor Advised Funds. As the name suggests, this means that donations are placed in a fund specifically designated by donors themselves – for instance, to support a geographical area or social issue that they have a particular connection with.
Community Foundations – such as Foundation Scotland – were one of the first providers of Donor Advised Funds. Currently, 134 donors have chosen to established a Donor Advised Fund with us, and this number continues to increase.
Donors tell us they are drawn to Foundation Scotland for several reasons. Some prefer partnering with us over, for instance, setting up their own registered charitable foundation with OSCR, or indeed, why they decide to wind up their registered charitable foundation and transfer to us.
Here is bit more detail:
What is a Donor Advised Fund ?
A Donor Advised Fund is a ring-fenced fund, set up with Foundation Scotland. It works something like this:
- Donation: The donor makes a contribution of personal assets (usually cash or shares) to their fund.
- Fund Management: Once the donation has been received, it is placed in a fund specifically designated by the donor. We then work with them to articulate the fund aim, how decisions on funding applications will be made and whether they want the fund to be invested or not (you can read more about what that means here).
- Grant Recommendations: As explained above, the donor can request where they want their money to go. In terms of grant awards, this means there can be flexibility in timing (how often grant rounds are open and how long they are open for) and the amount that can be applied for.
- Administration and Governance: We handle all administrative and reporting requirements, ensuring compliance with regulations, financial responsibilities and disbursing grants.
Benefits of Donor-Advised Funds
Donor Advised funds offer several advantages for donors compared to setting up their own charitable foundations:
- Tax Efficiency: Various tax effective incentives, such as the Gift Aid Scheme, means we can reclaim an extra 25% on every eligible donation, which is then added to the fund. In addition, higher rate taxpayers can also claim back additional relief on their donation.
- Simplicity: Foundation Scotland handles all administrative, fiduciary and reporting aspects, so that donors can focus on their giving. In addition, all giving is managed from one place, which helps with gift aid/tax reclaims.
- Legacy: Donor-Advised Funds can be part of estate planning. Any legacy left to Foundation Scotland is exempt from Inheritance Tax.
- Anonymity: donors can name their fund as they choose, or remain anonymous.
- Flexibility: Donors can take their time to decide who and what (or where) to support, adapting their giving strategy as community needs and personal interests evolve.
- Enhancing effectiveness and philanthropic advice: Foundation Scotland will carry out due diligence and financial checks ahead of making grants, and donors can benefit from tailored philanthropic advice to help them achieve more impact with their giving. We have expertise in connecting funds to communities that need them.
- Cost effective: all fundholders contribute to our running costs, and help us in our mission to grow philanthropy further. The cost of this depends on the size of the fund and the type of service provided.
Case study
Read more about one of our Donor Advised Fund-holders Russell Napier, who set up the Karen Napier Fund in memory his wife, and why he chose to work with Foundation Scotland.