Donor advised funds (“DAFs”) are one of the fastest-growing charitable structures in Canada. For good reason! They provide donors with a strategic vehicle for their philanthropy and create the opportunity to enhance charitable giving.
Billions of dollars are flowing into DAFs, with foundations holding DAFs now representing a major portion of annual giving. But, with the increased stakes have come growing debates.
Malcolm Burrows recently highlights some of the key issues facing DAFs in his recent paper Improving the Regulation of Canadian Foundations with Donor Advised Funds. Pointing out how DAFs remain poorly understood and awkwardly positioned in the Canadian charitable landscape.
From my perspective as someone who works with families through both their DAFs and private foundations, the issues Malcolm raises deserve serious attention. Since, clearer definitions and greater transparency will benefit donors and the charitable sector alike.
Donor Advised Funds Are Not a Category of Charity
Maybe the most important point in many debates around DAFs is that they’re not their own category of charity. In Canada, they are accounts within registered charities; often within community foundations, faith-based organizations, or financial institution–affiliated foundations.
This legal distinction matters. A donation to a DAF is an irrevocable gift to the registered charity that owns the fund. The donor receives a tax receipt, but the charity is the legal owner of the funds and is ultimately responsible for how they are invested and granted.
Unlike other forms of charitable giving, DAF donors typically continue to provide recommendations about where grants go and oftentimes how investments are managed. This creates a unique and sometimes confusing dynamic: the donor has relinquished legal control yet still plays an advisory role?
The Problem of the “Incomplete Donation”
In his recent paper, Malcolm introduces the idea of the “incomplete donation.” Under Canadian law, a charitable gift must be voluntary, irrevocable, and confer no private benefit to the donor. Yet DAF donors, while giving irrevocably, may still exert influence over their funds.
This blurs the line between a charitable donation and retained control. It can also lead to disappointment when donors realize that their “control” is advisory only. Recent disputes around the succession of donor advisors have underscored this issue. Families sometimes believe they can pass advisory privileges to the next generation, only to find that the foundation holding the DAF has their own policies.
But for donors, this lack of clarity is more than an academic concern. It affects estate planning, intergenerational giving, and the expectations families have when they create long-term philanthropic structures. So, this conflict needs to be addressed in some way, either by DAF providers providing better documentation and definitions of roles, etc., by voluntary standards, or, by regulation.
Charitable vs. Private Benefit
DAFs in Canada operate within a unique and fragmented marketplace. On one side, there are purely charitable providers, like community foundations. On the other, there are DAFs operated by financial institutions or other third-party providers.
This hybrid model raises questions about transparency, fiduciary duty, and conflicts of interest. Are donors paying fair market value for investment services, or are charitable funds subsidizing affiliated businesses? Do branded financial institution DAFs provide undue benefit to the corporate sponsor?
These are not abstract concerns. The language used around DAFs often mirrors commercial services: “fees,” “accounts,” and “investment management.” While this makes them accessible to donors, it can obscure the fact that these are irrevocable charitable gifts, not bank accounts.
Delayed Public Benefit and Transparency
Another criticism is the risk of “delayed public benefit.” DAFs sometimes hold charitable capital for years before making grants, leading to concerns about funds languishing. While this issue is not unique to DAFs, it does raise concerns about whether donations are being put to work quickly enough.
Transparency around public benefit is also a recurring theme. Donors, the charitable sector, and the public generally have limited visibility into DAF fees, investment practices, and grant making. Anonymous granting, while valuable in some cases, further reduces clarity. Without reporting requirements for individual funds, it is difficult to assess whether DAFs are fulfilling their charitable purpose in a timely manner in all cases.
Why Donors Should Welcome Transparency
Some in the charitable sector have suggested delaying tax receipts until funds are ultimately granted to operating charities. Others call for stricter reporting or disbursement quotas at the fund level. While these proposals may sometimes be controversial, they reflect a common desire for more accountability and transparency.
From my perspective, donors should welcome greater transparency and clearer legal definitions. It would:
- Protect donor intent by clarifying what influence donors (and their successors) can or cannot have.
- Strengthen governance by ensuring foundations exercise fiduciary oversight and manage investments prudently.
- Build trust with the public by showing that DAFs are more than tax planning tools, and they are vehicles for real charitable impact.
- Create a healthier marketplace by setting clear standards for fees, services, and conflicts of interest across different types of providers.
Building Confidence in the Future of DAFs
Donor advised funds have become a cornerstone of Canadian philanthropy. They offer flexibility, efficiency, and a way for families to engage in long-term charitable giving. But their rapid growth has outpaced Canadian regulation and public understanding.
By clarifying definitions and improving transparency, we can build a more robust DAF marketplace. One that works for donors, charities, and the causes they support.
As a family office that supports both private foundations and donor advised funds, I believe the sector should embrace these reforms. Doing so will preserve the credibility of DAFs and ensure they remain a trusted tool for philanthropy in Canada.
If you’d like to explore how donor advised funds or family foundations could fit into your family’s giving strategy, feel free to e-mail me: james@markdalemanagement.com
