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FAQs: Donor-Advised Funds (“DAFs”)
Q: What is a DAF?
A: DAFs are philanthropic and social impact investment tools that allow donors (individuals, families, corporations, etc.) to fund special accounts through DAF “sponsor” organizations. Donors receive immediate U.S. income tax deductions and maintain allocation privileges over the fund’s distribution.
Q: Is LOHAS a DAF sponsor?
A: Yes, LOHAS acts as a DAF sponsor but one with a specific interest in enabling and supporting donors to make investments with their DAF funds into for-profit social and environmental impact ventures (though traditional grants to nonprofits are also permitted).
Q: Can DAF funds be invested in for-profit impact investments?
A: Yes, most DAF sponsors invest their donors’ DAF funds in their own (or someone else’s) financial products (such as mutual funds that might be invested in fossil fuel companies); LOHAS simply believes that the spirit of DAF legislation is better realized by investing those funds in ventures that are actually delivering positive, sustainable social or environmental impact.
Q: Does LOHAS work with investment, wealth, and tax advisors to help support their clients’ interests in impact investing through DAFs?
A: Yes, LOHAS is not a registered investment advisor (“RIA”), wealth/asset manager, or tax advisor. We focus on enabling social and environmental impact investments from DAFs and allow advisors to offer this additional DAF impact investing service to their clients without concerns over relinquishing client oversight.
Q: How does LOHAS support investors with their DAFs?
A: LOHAS helps parties or their advisors set up DAFs or transfer existing DAFs. Ultimately, we help serve as our clients’ DAF impact fund managers to help them identify, evaluate, and allocate the capital in their DAFs to social or environmental impact ventures that align with their passions and investment goals. If desired, that includes doing the tracking and reporting on those investments after they’re made.
Q: How does LOHAS get paid for its DAF impact investing support services?
A: The management fees of LOHAS and its DAF administration partner are limited to a small annual fee tied to a DAF’s assets under management as well as a minor transactional fee each time funds are deployed from a DAF.
A: Impact investing in for-profit companies is possible through private foundations as a program or mission-related investment. These approaches are far more burdensome than investing through DAFs; and DAFs also offer superior tax deductions, fewer reporting obligations, greater privacy, and no annual fund allocation requirements. You may want to consider converting your private foundation (or redirecting funds from your private foundation) into a LOHAS DAF.
Q: Is there a requirement that a DAF allocate a certain amount of funds on a particular timeline?
A: No, unlike with a private foundation, there is no requirement that a DAF allocate any amount of capital or within any set timeframe.