Though approximately 1,000,000 donors have already established donor advised fund (DAF) accounts, many more could and probably should. Financial advisors have been responsible for creating many of these DAF accounts for their clients, and they understand how their clients have benefited.
The tax advantages of creating and contributing to DAFs have been well-documented, but the other benefits are often more meaningful to clients. These charitable vehicles have enabled them and their families to better organize their giving, develop a charitable mission, engage their children, and allow them to provide greater support to causes and charities that they are passionate about.
Philanthropy is designed to help organizations and people in need, but it also enables donors to experience a great amount of satisfaction, pride, and accomplishment as well. Creating a DAF will help clients plan their giving not just for a particular moment but for the next year, decade, or generation.
Some create DAFs because they are very simple to use and they aren’t required to adhere to cumbersome and complicated private foundation rules. Others who open and fund DAF accounts sometimes become more thoughtful about what they want to accomplish than when they were just sending checks or donating stock to individual charities previously.
During the COVID-19 pandemic, DAFs allowed donors to provide generous support to charities that were in desperate need since the donors already had donated these assets that could only be used for charitable purposes. If these donors didn’t have DAF accounts, many wouldn’t have been as generous.
DAF donors often want their own financial advisors to manage the assets in the DAF accounts, and when this is possible with certain DAF sponsors, the advisors and their clients are able to have meaningful conversations about not just the clients’ charitable goals but also their overall lifetime and legacy goals. This is also a wonderful opportunity for grandparents and parents to introduce their children to their trusted advisors so the family relationship can continue once they are no longer living. The charitable assets are often the stickiest assets and are one of the reasons advisors are able to retain and attract children of clients once the original clients are no longer living.
Since women are generally more philanthropic than men and have a longer life expectancy, engaging the spouses of clients and discussing charitable planning has helped many advisors retain them as clients after the death of the primary client. And since often the spouses or widows are the ones who encourage and engage children in the family’s charitable activities, working with them can enable an advisor to attract the children as clients rather than seeing them utilize another advisor, largely because they can see how the advisor is interested in helping them achieve both their charitable and financial goals instead of only the latter.
But the greatest benefit of helping clients establish DAF accounts is helping them achieve the greatest possible impact upon charities. Many clients continue to provide support to charities as they always have done, and do not realize that they can do even more or do it differently. They may not understand that they could be bunching their donations to a DAF, contributing to a DAF in their last five to ten years of working so those investments can grow tax-free and allow them to continue to make generous grants to charities from their DAF during retirement, and creating a DAF so their heirs can keep supporting charities after they are no longer living.
Nearly all DAF donors establish and fund accounts so they can make some grants soon, but most want these charitable vehicles to continue for some time. Some may have been frustrated by various aspects of their previous giving, whether it is the cost or complexity of their family foundation, or the responsibility of keeping track of all of the individual donations they made directly to many charities. DAFs have helped many families simplify their giving as they receive just one annual tax donation letter when they contribute to a DAF, make grants on the DAF sponsor’s giving portal at any time and day, and can donate a variety of stocks and other assets to just one charitable recipient than many.
In the end, clients, advisors, and charities all benefit when DAF accounts are created. They allow clients to truly experience the joy of giving, and enable charities to receive more consistent and larger grants.
Reprint with permission from American Endowment Foundation, for the original article visit, https://www.aefonline.org/