A new way of giving

Nowadays, families and individuals, especially high-net-worth individuals, are looking for new strategies and giving vehicles to promote philanthropy and social impact. Despite this, the most common and traditional instruments remain foundations and trusts. That said, donor-advised funds (DAFs) are frequently being used as a valid alternative, especially in common-law countries.

A DAF is a charitable giving vehicle established by an individual or a family under an umbrella charity that administers the DAF account on behalf of the donor. The aim of the DAF is to finance specific projects with the support and network of the umbrella charity. The donor makes an irrevocable charitable contribution to the DAF, retains advisory powers and recommend grants, while the umbrella charity retains exclusive legal control of the assets, manages the accounts and, due to its knowledge in the field or in a particular area, creates the link between the projects and the DAF.

In the UK and the US, DAFs are frequently used and their numbers are increasing yearly, while in EU Member States they are still not very well known and are therefore little-used compared to other charitable instruments.

In the EU, there are a few Member States where national foundations act as philanthropic intermediaries and manage funds to pursue specific projects. Among them are Belgium, France and Switzerland. In Belgium, the King Baudouin Foundation manages more than 800 funds, each with its own mission, giving strategy and area of interest. The Fondation de France manages around 980 DAFs, created by individuals, families and companies. In Switzerland, the Swiss Philanthropy Foundation manages 65 funds.

In this dynamic context, Italy has now been introduced to the use of DAFs, thanks to the community foundations that are deeply connected to a specific community or region and collect contributions from individuals, companies and charity organisations, with the aim of reinvesting them in that community or region.

Since then, other entities have started to act as philanthropic intermediaries with the purpose of providing advice and philanthropy management services and creating, managing and distributing funds. Therefore, Italy is currently experiencing growing interest in this particular philanthropic field as people look for new ways of giving and reliable solutions.

Neither civil nor tax guidelines have been issued, so at the moment the only way to regulate a DAF is to apply general provisions. From a civil-law point of view, a contribution to a DAF is qualified as a specific type of gift (art.793 of the Italian Civil Code) where the beneficiary is subject to limitations and must do as prescribed by the donor.

On the other hand, the general rule provides that, for direct tax purposes, the charitable contributions made by the donor in favour of entities that are used for the performance of its charitable activity are deductible from income taxes and exempted from gift tax.

In light of the above, the hope is that the Italian legislature will soon introduce a specific regulation that recognises, reorganises and regulates DAFs, perhaps using another European country as a model.

In the meantime, it is possible to set up a trust with two or more sub-funds, each of them managing some assets of the trust that are kept separate from the others, with the aim of pursuing a particular project. In this way, each sub-fund will act independently from the others and will be subject to specific provisions separate to those applicable to the other assets of the trust.

Further, that trust might receive contributions (and guarantee tax advantages) from donors around the world, thanks to the international umbrella charities that act as philanthropic intermediaries between the donors and the trust.

In conclusion, DAFs represent a new way (or, at least, a valid alternative) to do philanthropy, especially as they could attract a new generation of philanthropists due to their flexibility, uniqueness and relevant tax advantages.