How Planning Early This Year Will Help Your Clients and YouSubmitted by American Endowment Foundation on July 10th, 2017
By Ken Nopar
Though it is usually in the best interests of advisors and their clients to create and fund donor advised fund accounts as well as make grants throughout the year, 50% of the donor advised fund (DAF) accounts opened at American Endowment Foundation (AEF), nearly 40% of the donations to these accounts, and about one-quarter of the grant recommendations submitted to AEF over the past three years have been done in December.
While AEF is pleased to open accounts, receive donations, and process grants at anytime, we always greatly appreciate the help of advisors who are able to encourage their clients to take these steps throughout the year.
This year, more DAF account openings, contributions of stock and other assets to these new and existing accounts, and grant recommendations are taking place earlier in the year, so we hope and expect that this is a trend that will continue.
In talking with advisors, we have compiled reasons why they are moving the timetable ahead this year so they are not burdened by the usual last-minute and end-of-year activities.
Some of the reasons why clients, you and your colleagues, and the charities that your clients support benefit from moving the timetable ahead include:
- The best charitable giving decisions are made without the pressure of time. Individuals or families, along with their advisors, can best determine the proper amount and assets to donate as well as select the most appropriate grantees before the fourth quarter. With the year-end deadline looming, clients often rush to make decisions that they may not ordinarily make.
- Because many custodians establish early year-end cutoffs for donating stock, and because donors wish to donate illiquid assets that take longer than expected to process, and because DAF sponsors need to first vet and approve charities( and some grantees have reduced staffing or hours during the holidays) some donors are disappointed that they will not receive a tax deduction in the same year, or that their grants are not able to be sent out before the new year.
- While some donors establish DAF accounts with the intention of making grants in the future, many wish to make grants soon after the account creation. Because it often does take a bit longer to establish a DAF account in the last few months of the year, it would behoove the donors to create their account earlier so they have plenty of time to submit their grant recommendations and that AEF has time to process them.
- When some clients are unsure which assets or how much to donate, but know they will establish a DAF at AEF, their advisors are encouraging and helping them set up the accounts without funding them earlier in the year so they can quickly fund them later. We refer to these DAFs as legacy funds. There is no cost to do this, and when the clients have already completed the simple AEF DAF application and established the account ahead of time, they only need to make the donation and can recommend grants soon afterwards.
- Charitable organizations have bills to pay throughout the year, and because government and other support is not always reliable, nearly all charities prefer to receive donations throughout the year rather than primarily at the end of the year. Donors who wish to meet with or discuss funding with their grantees often will be able to spend more time with them before the last few months of the year.
- Though many donors wish to include family and friends in their charitable decision making, because they have gotten into the habit of waiting until the holiday season, there is often not enough time to engage in this conversation at year-end. Since families often gather during the summer, this is an ideal time to at least begin the discussion so decisions can be finalized during the fall if not before.
- The time to donate stock or other assets to initially create a DAF or fund it later is when advisors recommend that these are sold, regardless of the time of year. Those donors who wait to donate until November or December could have received a much greater tax benefit by donating those or other assets earlier in the year. Finally, with the pending tax changes in Congress, clients may receive a much larger tax benefit by donating appreciated assets now should the tax rates drop in the future.
- Since most advisors and their associates like to enjoy the year-end holidays, encouraging their clients to establish their DAF accounts, donating the assets, and making their grant recommendations earlier in the year will decrease their amount of work and stress during December. And for those clients who like to donate stock to different charities, advisors who encourage their clients to donate all of the stock to their clients’ DAF will save them much effort. This will also allow their clients to receive just one tax-receipt letter from the DAF sponsor rather than many from numerous charities which often get misplaced. Finally, advisors who encourage their clients to use DonorCentral to recommend grants online save themselves and their clients time and effort, and the charities receive the grants much quicker.
We realize that advisors cannot force clients to move the timetable forward, but when shown the benefits, most clients are pleased to do so earlier. Those who continue to wait for no reason are the ones who become frustrated or who are disappointed.
Today, many advisors have gotten in the habit of looking in early September to see which clients donated stock in the last few months of the previous year. This enables them to contact the clients to see if they intend to do so again, and in most cases, the advisors are able to succeed in getting the clients to make their donations earlier.
Once advisors see how frequently some clients donate stock to different charities and their time and effort involved in doing so, many suggest that their clients create and utilize a donor advised fund. At AEF, advisors are able to still manage the charitable investments held within the donor advised fund.
These simple steps will help to allow your clients, your associates, and you to have a bit more time to relax and enjoy their holiday seasons. Though November and December seem a long way off, they will soon be here.