Establish Placeholder Funds and Avoid the Year-end Crush

Effective on October 1, 2018, American Endowment Foundation (AEF) will implement a higher minimum fee. Even though for now only the smallest donor advised fund (DAF) accounts opened on or after that date will be affected by the change, some advisors have contacted AEF to determine if there is a way to open new accounts with the old minimum fee.  (The basis points charged will remain the same).

Fortunately, there is. As long as AEF receives the application via our online submittal process before October 1, 2018 (even if it is not funded until later in the year), donors will be able to take advantage of the prior minimum fee structure.

These funds are called placeholder funds. Previously, at the end of every year, advisors and clients rushed to open donor advised funds. The pressure upon the advisors, their associates, and the clients to rush to submit everything before year-end was significant and often unnecessary.

These placeholder funds at AEF are becoming a very popular tool for advisors who do not enjoy the year-end crush.  They simply are a way for advisors and their clients to submit the completed donor advised fund electronic application to AEF ahead of time, and then when the clients decide (hopefully sooner rather than later!) to donate assets to their fund, the account is ready to go without delay. 

In addition to the concept of “bunching” donations that has become widely utilized, especially after the tax law changes passed last year, placeholder funds are also becoming used more often by advisors whose clients agree to open accounts but just can’t pull the trigger in donating assets.  This process has become much simpler for advisors and their clients since the AEF DAF applications are now submitted electronically.

It is easier for everyone when the opening and funding takes place at the same time, but when a client agrees that opening a DAF is the right decision, but just needs a bit more time to determine the amount and the assets to donate, a placeholder DAF is the perfect solution.  There is no charge to open the DAFs using the electronic application even if funding takes place later.

The number of new DAF accounts  at AEF has increased 45% this year already (and contributions are up 140%), largely because advisors have been able to plan in advance and not have to wait to see about any tax law changes.  

We strongly encourage everyone to submit new applications early this fall to minimize the December stress. Clients quickly understand the benefits of doing this and establishing placeholder funds when necessary, especially if they intend to both open their accounts and make grants to their favorite charities from their new DAF accounts this year.

At American Endowment Foundation, we look forward to helping donors and advisors determine the best strategies for their charitable giving. Please contact us or call at 1-888-966-8170 with any questions.