How to Help Clients Who Just Established DAF AccountsSubmitted by American Endowment Foundation on January 29th, 2018
By Ken Nopar
December again shattered the records for the number of donor advised funds (DAFs) established during the month at many DAF sponsors. Fortunately, many advisors read our September column in Financial Advisor, Talk With Clients Now About Charitable Plans And Avoid Year-End Stress,” and encouraged their clients to set up the funds earlier in the year, and many clients followed their advice. Others waited until the last possible minute and then pulled the trigger, causing a stampede of activity and stress upon the advisors, their associates and the clients themselves.
In December, one firm alone established 140 DAF accounts at American Endowment Foundation (AEF) among the many hundreds of other accounts opened by other advisors and their clients. Though nearly all donors who set up the funds had charitable intent, they rushed to do this to receive a tax deduction, to donate highly appreciated assets, and to frontload their charitable giving because of the new tax rules signed into law. Furthermore, advisors and donors increasingly recognize that having a new donor advised fund account will simplify their charitable giving.
However, establishing the donor advised fund account is just one step. It may be natural for some donors and their advisors, especially after the year-end rush, to breathe a sigh of relief that they have received the tax deduction for 2017. Though the tax deduction is important, nearly all donors who made the decision to fund and create a DAF did so primarily because they have deep charitable intent.
So the next step is for the clients/donors, on their own or with their advisors, to determine what they should do at this point. Establishing a DAF account often enables donors to feel a greater sense of pride, satisfaction and accomplishment with their charitable giving both now and in the future.
Therefore, it would be very helpful for all clients with new DAF accounts, as well as for many who previously established ones, to do the following now:
- Determine the goals of their charitable giving and develop a mission statement or statement of purpose.
- Discuss whether they want to support many different causes and charities or just a small number.
- Contemplate why charitable giving is important to them and whether leaving a charitable legacy is relevant.
- Decide who will be involved now in the charitable giving process, and at what point children or other family members should be involved.
- Clarify whether the DAF account should be for a limited time basis, should be continued after the death of the DAF creators, and if the latter, for how long after their death.
- Discuss who the successor advisor(s) should be to the account if it is to continue, and perhaps at what age their younger children should be named the successor advisor.
- Determine how much they should grant to various charities from the DAF account and whether they should schedule repeated grants in advance.
- Evaluate how much they should contribute to their donor advised fund account every year and in the future. Identify additional assets that should be donated in the future and whether illiquid assets like company stock, farmland, real estate or insurance should be considered. Their financial advisor and CPA should be consulted in this conversation.
- Discuss how the advisors should invest the assets in the DAF account. If a client set up a DAF account on their own, determine how their advisor can manage these assets.
- Discuss whether they want to visit with the leadership of the charities they support (if their grants are significant enough), conduct a site visit, or volunteer, and decide how to evaluate whether they want to continue to support these organizations in the future.
- Determine in which situations they want to make grants publicly or anonymously.
- Consider how formal a process they wish to utilize when determining where to give and who will be involved, whether it will be unstructured or whether to have governance that is often utilized within private foundations.
Should clients need additional guidance or if they are reluctant to discuss these matters by themselves or with their professional advisors, they may want to engage the services of a philanthropic advisory firm. These independent firms do not provide financial, legal or tax advice, and often work with donors who are beginning their charitable journey or with those who need or want to change direction.
Because many publications and experts at the end of December informed their readers about the benefits of setting up DAF accounts, many clients probably established them on their own without consulting their advisors. This would be an excellent time to contact clients to see if this may be the case. DAF accounts are usually portable, and because clients want their advisors to be able to manage the assets in their DAF accounts, now would be the time for advisors to bring these accounts under their control, especially because clients will often continue to donate to their accounts and increase their size. Because AEF allows advisors to manage the DAF assets in their clients’ accounts at any amount, over $50 million in DAF accounts were transferred to AEF in 2016.
There will always be a charitable giving year-end rush, but there are simple steps that will smooth out the giving timetable. Rather than wait until autumn, look at the clients’ previous year-end requests and activity now, and talk with them to explain the benefits of giving earlier this year. Touch base with them again in summer, and if they have not given by then, establish a date after Labor Day (and far before December!) to determine and schedule additional gifts and grants.
By moving the charitable timetable ahead, your clients will thank you, your assistants and associates will thank you, and most importantly, because the charities they support need and greatly appreciate contributions earlier in the year since they have bills to pay, they will thank your clients.
(This article originally appeared on FA-mag.com, January 17, 2018.)
We at American Endowment Foundation look forward to discussing your needs and interests in greater detail. Contact or call us at 1-888-660-4508 and let us discuss how donor advised funds can play a role in your financial practice.