Over the last decade, the growth of donor advised funds (DAFs) has been increasing at a rapid rate. Their simplicity to set-up, flexibility, and tax-saving capabilities have proven to be an excellent tool in charitable and estate planning as well as business exit strategies. However, choosing the best DAF for a donors’ circumstances can be as varied as the different charities that they choose to support.
The following ten questions will allow a potential donor and their advisor to determine what DAF may be the best choice for their interests:
Question #1: What are the granting limitations?
Are there restrictions on grants to various charities outside of the mission or geographic region of the DAF sponsor? Can the donor determine how much to grant to various charities since some DAF sponsors only allow a certain percentage of endowed DAF funds to be granted out each year, while other DAF sponsors require a large percentage of the funds to be granted to itself as is often the case at university or other single-issue DAF sponsors?
Question #2: What types of assets can the DAF sponsor accept?
Only cash and appreciated securities, or complex assets like real estate, privately-held C or S corporation stock, and LP or LLC interests? What are the minimum sizes for these types of donations?
Question #3: How flexible are the provisions for succession upon the death of the donor?
Can the assets in the donor’s DAF be passed down to one or more successor advisors or to other charities, or does the remaining balance at the death of the donor get distributed to the DAF sponsor’s endowment? Can the DAF account last in perpetuity?
Question #4: Can the donor’s financial advisor select and manage the assets in the DAF account?
When this is possible, the minimums to manage the assets often vary from $250,000 at the largest commercial DAFs to $1,000,000 for other DAFs. Very few independent DAFs like AEF allow advisors to manage their client’s DAF assets at all levels with their preferred custodian.
Question #5: Does a DAF sponsor have a retail DAF offering?
Does it seek to open DAF accounts directly with donors, offer investment options, and bypass the advisor, or does a DAF sponsor only work with donors who have a financial advisor who manages the assets?
Question #6: Is the DAF sponsor truly independent or an extension of a commercial entity?
Does the entity offer wealth management and wealth planning services itself? Could this compete with the donor’s financial advisor’s services?
Question #7: What are the investment options for the assets in the donor’s DAF account?
Advisors and clients should understand whether they are limited to pools of funds shared with other donors, the recent performance of these, and if there are restrictions pertaining to investing in individual securities or other investments.
Question #8: Is there online access available to the DAF account?
Does the program offer the ease of secure online access to the account and the ability to make grant recommendations online? Can donors view past contributions to their account and past grants from the account?
Question #9: What are the costs and practices?
What is the annual administrative fee? How often and quickly does DAF sponsor send out grants? Does DAF sponsor use call center for all donors, or is personal service reserved only for the largest accounts? Can account be transferred to another DAF sponsor, or is it held permanently by initial sponsor? What resources and content are available to help donors and advisors?
Question #10: What is the history & size of the DAF sponsor?
When was it founded? How many DAF accounts are there? How many assets in those DAFs? How many full-time employees and board members are there? Is the DAF sponsor’s Tax Form 990 on the website or readily available?
Asking these ten questions before opening a donor advised fund will give the insight needed to make charitable giving as tax-smart, flexible, and enjoyable as possible.
Reprint with permission from American Endowment Foundation, for the original article visit, https://www.aefonline.org/